A price floor is
A) a minimum price set by government that sellers must charge for a good.
B) a maximum price set by government that sellers may charge for a good.
C) the difference between the initial equilibrium price and the equilibrium price after a
decrease in supply.
D) the minimum price that consumers are willing to pay for a good.
Figure 13.4
Refer to Figure 13.4. The marginal revenue of the 10th pound of burritos is
A) $2.
B) $4.
C) $10.
D) $100.
If PX > MCX, society gains by ________ X.
A) producing more
B) producing less
C) raising the price of
D) increasing the cost of producing
As income becomes more unequally distributed, the Lorenz curve ________ and
________.
A) moves further down to the right; the shaded area increases
B) moves further up to the left; the shaded area decreases
C) moves further up to the left, rising above the 45 degree line; the shaded area
increases
D) moves further down to the right; the shaded area decreases
Figure 1.3
Refer to Figure 1.3. The slope of the line between Points B and D is
A) -3.
B) -0.33.
C) 0.33.
D) 3
You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food
store. You will earn an economic profit if the return on your investment is
A) greater than 5%.
B) 5%.
C) between 0 and 5%.
D) 10% or greater.
A form of industry structure characterized by a few firms each large enough to
influence market price is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Table 7.1
Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.1. If the hourly wage rate is $7 and the hourly price of capital is $10,
which production technology should be selected?
A) A
B) B
C) C
D) D
An example of a compensating differential is:
A) A cardiologist must train for two more years than a family practitioner and on
average cardiologists earn 65% more per year than family practitioners.
B) A police department hires both men and women who have just graduated from
college. The men are assigned patrol duty, and the women are assigned desk jobs.
C) It takes the same amount and type of training to be either a paramedic or an
emergency room nurse. Paramedics earn about 25% more than emergency room nurses
with the same amount of experience. About 12% of paramedics, but only 3% of
emergency room nurses, are injured on the job each year.
D) Paulie was injured on the job at a tanning salon and as a result of his injuries he can
no longer work. He now qualifies for $1,600 a month in disability payments.
The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing
where MR = MC. The current market price of a disposable razor is $3.00. The firm sells
1,800 disposable razors. Its AVC is $2.00 and its AFC is $1.50. What should Razor-Thin
do?
A) Continue to produce because price exceeds AVC.
B) Shut down and produce zero razors because price is less than ATC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.
Figure 3.19
Refer to Figure 3.19. When the economy moves from Point A to Point B, there has been
A) an increase in demand and an increase in supply.
B) an increase in demand and an increase in quantity supplied.
C) an increase in quantity demanded and an increase in quantity supplied.
D) an increase in quantity demanded and an increase in supply.
Cashews are measured in bushels and tea is measured in pounds (lbs.)
Table 20.2
Refer to Table 20.2. Which terms of trade benefits both countries?
A) 1 bushel of cashews for 4 lbs. of tea
B) 1 bushel of cashews for 6 lbs. of tea
C) 1 lb. of tea for 8 bushels of cashews
D) 1 lb. of tea for 10 bushels of cashews
As interest rates rise, a firm would
A) have lower expected costs of investment.
B) have increasing present value of expected earning.
C) be willing to pay less now to purchase the same number of future dollars.
D) be willing to pay more now to purchase the same number of future dollars.
The marginal tax rate is the tax rate paid on
A) all income earned.
B) all supplemental income.
C) any additional income earned.
D) taxable retirement income.
If a monopolist earns positive economic profits in the long run,
A) new firms will enter the market.
B) the monopolist expands production.
C) the industry supply curve shifts to the right.
D) the monopolist will not change its current behavior.
Which of the following are examples of institutions that economists would classify as
belonging to the financial capital market?
A) the stock market
B) banks
C) savings and loans
D) all of the above
There are 12 families in a gated community that are affected by air pollution from a
local factory. The pollution could be reduced if the company spent $24,000 on upgraded
ventilators. The company agrees to install the ventilators if the affected families
contribute the $24,000. Since there are no legal restrictions governing the factory’s air
pollution, the negotiations fail. This outcome is an example of the
A) free rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) problem that arises when property rights are not defined.
A firm will shut down in the short run if
A) it is suffering a loss.
B) fixed costs exceed revenues.
C) variable costs exceed revenues.
D) total costs exceed revenues.
Figure 16.2
Refer to Figure 16.2. The ________ imposed as a result of producing the efficient level
of fertilizer is $250.
A) marginal damage cost
B) total damage
C) marginal private cost
D) marginal social cost
Figure 13.3
Refer to Figure 13.3. This firm’s marginal revenue will be negative at
A) prices above $5.
B) prices below $5.
C) all prices.
D) prices between $4 and $8.
You own a business that answers telephone calls for physicians after their offices close.
You have an incentive to substitute labor for capital if the
A) price of capital decreases.
B) price of labor decreases.
C) price of labor increases.
D) marginal product of labor decreases.
Table 16.2
Refer to Table 16.2. This glass-recycling firm is perfectly competitive and is NOT
forced to take damage costs into account. If the market price of glass is $25 a ton, the
firm will produce ________ tons of glass.
A) 0
B) 2
C) 3
D) 4
If an individual perfectly competitive firm charges a price above the industry
equilibrium price, it will
A) sell all that it can produce and gain equal revenue with competitors.
B) sell all that it can produce and gain more revenue than competitors.
C) sell part of what it can produce and gain less revenue than competitors will.
D) not sell any of what it produces.
The table shows the relationship between income and utility for Sue.
Table 17.2
Refer to Table 17.2. From the table, we can see that Sue is ________.
A) risk averse
B) risk loving
C) risk neutral
D) We cannot determine Sue’s attitude toward risk from the table.
________ is a repeated game strategy in which a player responds in kind to an
opponent’s play.
A) Maximin
B) Tit-for-tat
C) Prisoner’s dilemma
D) Price leadership
The total of consumer plus producer surplus is greatest
A) when consumer surplus is maximized.
B) when producer surplus is maximized.
C) at the market equilibrium.
D) all of the above
Which of the following statements about public goods is NOT true?
A) They bestow collective benefits on members of society.
B) They are non-excludable since those who do not pay for them cannot be excluded
from enjoying them.
C) They will be under supplied by the private sector.
D) They are only produced by government agencies.
China has invested heavily in turbine manufacturing and in 2009 had become the
world’s largest wind power market. The investment in turbine manufacturing is an
example of ________ investment.
A) intangible capital
B) human capital
C) tangible capital
D) social capital
Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a
5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000.
Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of
$1.50 per dozen.
Amy’s total costs equal
A) $39,000.
B) $40,000.
C) $50,000.
D) $59,000.
Short-run costs that do NOT depend on the level of output are
A) total fixed costs only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.
Individuals with more experience tend to earn more than individuals with less
experience. This is because
A) experience is a compensating differential.
B) experience on the job increases an individual’s human capital.
C) it is only fair that a more-experienced worker be paid more than a less-experienced
worker.
D) the government requires that more-experienced workers be paid more than
less-experienced workers.
It is essential to establish specific criteria to judge the performance of any economic
system. Two such criteria are
A) efficiency and equity.
B) profit opportunities and technological progress.
C) efficiency and profit opportunities.
D) technological progress and achieving general equilibrium.
If a firm’s demand curve is perfectly elastic, then at the profit maximizing level of
output
A) P > MR > MC.
B) P = MR = MC.
C) P < MR < MC.
D) P > 0 and MR = 0.
As new firms enter a monopolistically competitive industry, the ________ curve facing
each existing firm will shift to the left and become more ________ because there are
now more substitutes for its product.
A) demand; more
B) demand; less
C) supply; more
D) supply; less
Figure 8.8
Refer to Figure 8.8. At the market price of $8 per bushel, if this farmer produces the
profit maximizing level of soybeans, the profit would be
A) $0.
B) $2,800.
C) $5,600.
D) $8,000.
Explain how the existence of unemployment compensation may actually result in a
higher unemployment rate than would otherwise occur if there where no such
compensation in the first place.
Suppose the price of copper and the quantity of copper both rose at the same time. What
might be the likely explanation of this using supply and demand analysis?
The SAT (Scholastic Aptitude Test) is often used as a signaling device by colleges to
find high- qualified students. High scores on this test can certainly communicate a lot of
other qualities about a student that may make it an efficient sorting device. However,
can you think of any reason why at least occasionally a high score might not signal the
correct information?
Comment on the following statement: “As the market wage rises, the firm is likely to
hire less labor.”
Table 15.1
Explain how comparing two-earner and one-earner households can be used to illustrate
the problem of using money income as a measure of well-being.
Explain how low-skilled workers might actually be made worse off from a minimum
wage law in terms of working conditions and job training. In addition, what might be
the long-run impact on wages and earnings?
Comment on the following statement: “Elasticity is constant along a straight-line
demand curve”.
If the economy were truly made of industries that fit the textbook definition of perfect
competition what do you expect would be a major disadvantage of this from the
consumer’s perspective?
Scenario 1 – Suppose a testing company that administers college entrance exams is
concerned about random guessing. The multiple-choice exams that they administer
contain four choices with only one correct answer. Instead of simply awarding points
for correct answers and zero points for incorrect answers they choose instead to award 9
points for every correct answer and subtract 5 points for every incorrect answer.
Use Scenario 1 to answer the following question. Let’s assume that instead of designing
exams with four choices the exams have five choices. How would the penalty for
guessing have to change in order for the student to be indifferent to guessing or leaving
the question blank when he has only eliminated two answers as “incorrect”?
Explain how economists use random experiments.
Many fast-food restaurants have signs on their cash registers that read, “Your meal is
free if the cashier does not give you a receipt”. What might be the purpose of such a
sign? Hint: there is a moral hazard problem here.
Below are the demand curves for CDs for two individuals: Bob and Tom.
Assume that Bob and Tom are the only two buyers in the market for CDs. Draw the
market demand curve.
Why have many developing countries pursued industry at the expense of agriculture?
What has been the result of this strategy?
What reasons do governments often give to justify the decision to not allow price to
ration goods?
Explain the difficulty with applying the benefits principle and give examples.
Millions of people wake up each morning, they get dressed and go to work by travelling
on our nation’s freeways early in the morning during rush hour. Why might this
seemingly private activity actually result in a negative externality? Why might
motorists not really worry about it very much?