1)
In this market for sunscreen, there is a decrease in the price of zinc oxide, an input into
sunscreen, and more producers enter the market. The equilibrium price
a.increases and the equilibrium quantity decreases.
b.decreases and the equilibrium quantity increases.
c.is ambiguous and the equilibrium quantity increases.
d.decreases and the equilibrium quantity is ambiguous.
2) The firm will make the most profits if it produces the quantity of output at which
a.marginal cost equals average cost.
b.profit per unit is greatest.
c.marginal revenue equals total revenue.
d.marginal revenue equals marginal cost.
3) Normative statements are not
a.descriptive.
b.prescriptive.
c.claims about how the world should be.
d.made by economists speaking as policy advisers.
4)
As price falls from Pa to Pb, which demand curve represents the most elastic demand?
a.D1
b.D2
c.D3
d.All of the above are equally elastic.
5) Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
Firms will earn positive profits in the short run if the market price
a.is less than P1.
b.is greater than P1 but less than P3.
c.equals P3.
d.exceeds P3.
6) In the presence of discrimination by customers,
a.market forces nevertheless always work to prevent discriminatory wage differentials.
b.discriminatory wage differentials can exist, but only if firms refrain from maximizing
their profits.
c.discriminatory wage differentials can exist, but only if government reinforces
customers’ practices by
passing laws that mandate discrimination.
d.discriminatory wage differentials can exist, even in the absence of discriminatory
practices by firms or by government.
7) Attributing the gender wage gap to ongoing discrimination by employers will likely
be incorrect because
a.some of the wage gap is explained by efficiency wages.
b.differences in years of work experience likely lead to productivity differences
between men and women.
c.compensating differentials usually lead to higher wages for women.
d.All of the above are correct.
8) Katherine gives piano lessons for $15 per hour. She also grows flowers, which she
arranges and sells at the local farmer’s market. One day she spends 5 hours planting $50
worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them
for $150 at the farmer’s market. Katherine’s accounting profits are
a.$100, and her economic profits are $25.
b.$100, and her economic profits are $75.
c.$25, and her economic profits are $100.
d.$75, and her economic profits are $125.
9) Which of the following represents the best government policy to reduce the
deadweight loss associated with a monopolistically competitive market?
a.The government should regulate firms in a manner similar to natural monopolies.
b.The government should encourage more firms to enter the industry because without
government intervention, there are likely to be “too few”firms.
c.The government should encourage some firms to exit the industry because without
government intervention, there are likely to be “too many”firms.
d.There is no government policy that can reduce deadweight loss without creating other
problems.
10) Trade between the United States and Guatemala
a.benefits both the United States and Guatemala.
b.is a losing proposition for the United States because Guatemalan labor is less
expensive than U.S. labor.
c.is a losing proposition for Guatemala because capital is much more abundant in the
U.S. than in Guatemala.
d.is a losing proposition for Guatemala because U.S. workers are more productive than
Guatemalan workers.
11) Which of the following can lead to market failure?
a.externalities and market power
b.externalities but not market power
c.market power but not externalities
d.neither externalities nor market power
12) Table 22-5
The citizens of Anytown will decide whether to build a new library, a recreation center,
or an arena. Exactly one of the three choices will prevail, and the choice will be made
by way of pairwise voting, with the majority determining the outcome on each vote.
The preferences of the voters are summarized in the table below.
Voter Type
Refer to Table 22-5. If (1) the first vote pits “library” against “arena,” and (2) the second
vote pits “recreation center” against the winner of the first vote, then the outcome is as
follows:
a.”Library” wins the first vote and “library” wins the second vote, so they build a
library.
b.”Library” wins the first vote and “recreation center” wins the second vote, so they
build a recreation center.
c.”arena” wins the first vote and “arena” wins the second vote, so they build an arena.
d.”arena” wins the first vote and “recreation center” wins the second vote, so they build
a recreation center.
13) A monopolist faces the following demand curve:
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per
unit. If the monopolist were able to perfectly price discriminate, how many units would
it sell?
a.400
b.500
c.900
d. 4,200
14) Congressman Dearmark justified spending $3 million on a new entertainment
complex in his district because it will create 450 new jobs for his residents. As a student
of economics, you know that
a.this is a case of the broken window fallacy.
b.this is a great use of taxpayer dollars.
c.this policy diverts money from spending somewhere else in the economy.
d.Both a and c are correct.
15) Table 17-21
The Chicken Game is named for a contest in which drivers test their courage by driving
straight at each other. John and Paul have a common interest to avoid crashing into each
other, but they also have a personal, competing interest to not turn first to demonstrate
their courage to those observing the contest. The payoff table for this situation is
provided below. The payoffs are shown as (John, Paul).
Refer to Table 17-21. What is (are) the Nash equilibrium (equilibria) in this Chicken
game?
a.John: Turn Paul: Turn
b.John: Turn
Paul: Drive Straight
c.John: Drive Straight Paul: Turn
d.Both b and c are Nash equilibria
16) Who among the following individuals most likely experiences the largest
nonmonetary reward as a supplier of labor? Assume all of the four individuals have the
same level of education and work the same number of hours per week.
a.Albert, who prefers not to socialize and works at home by himself
b.Amy, whose job provides little intellectual and personal satisfaction
c.Antoinette, whose preference is to avoid dangerous work but works as a firefighter
d.Arnold, who works the night shift but would prefer to work during the day and sleep
at night
17) Suppose that Firms A and B each produce high-resolution computer monitors, but
Firm A can do so at a lower cost.
Cassie and David each want to purchase a high-resolution computer monitor, but David
is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but
David does not, then the market outcome illustrates which of the following principles?
(i)Free markets allocate the supply of goods to the buyers who value them most highly,
as measured by their willingness to pay.
(ii)Free markets allocate the demand for goods to the sellers who can produce them at
the least cost.
a.(i) only
b.(ii) only
c.both (i) and (ii)
d.neither (i) nor (ii)
18) An example of signaling is a boyfriend giving an expensive, romantic gift to his
girlfriend to convey his love for her.
a.True
b.False