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In a two-good, two country world, if one country has an absolute advantage in the
production of both goods, it cannot benefit by trading with the other country.
A market failure arises when an entire sector of the economy (for example, the airline
industry) collapses because of some unforeseen event.
In the United States, corporate profits are taxed at the corporate level and then are taxed
again as personal income in the form of dividend payments.
A monopoly is defined as a firm that has the largest market share in an industry.
If the substitution effect of a wage increase dominates the income effect, the labor
supply curve has a positive slope.
The substitution effect of a wage decrease examines the effect of the decrease in wage
income on a worker's ability to consume goods and services.
In recent years, the prices of new domestically produced cars have been falling.
Suppose consumers respond by reducing their demand for used cars and mass transport
services such as bus travel. This information suggests that the cross-price elasticity
between new cars and used cars, and the cross-price elasticity between new cars and
bus travel, are negative.
Accounting profit is the sum of a firm's revenue and its opportunity costs.
After an increase in demand in a constant-cost industry, firms will find themselves with
higher average cost curves.
Firms in different countries that face different input prices may produce the same good
using different combinations of inputs, even though they have access to the same
technology.
If there is pollution in producing a product, then the market equilibrium price is too
high and equilibrium quantity is too low.
If marginal benefit is greater than marginal cost, output is inefficiently high.
The ability of a firm or country to produce a good or service at a lower opportunity cost
than other producers is called absolute advantage.
If the demand for labor is unchanged, population growth will increase the supply of
labor and increase the equilibrium wage.
When a monopolistically competitive firm cuts its price to increase its sales, it
experiences a loss in revenue due to the income effect and a gain in revenue due to the
substitution effect.
A commission system of compensation reduces the risk to workers during seasonal
periods when business is sluggish.
Most economists believe that consumers would be better off if markets were perfectly
competitive rather than monopolistically competitive.
A tariff is a tax imposed by a government on its own exports.
An external benefit is created when you pursue a college education.
A decrease in the unemployment rate may be represented as a movement from a point
on the production possibilities frontier to a point outside the frontier.
When there is a negative externality, the competitive output is greater than the
economically efficient output level.
As nonunion construction workers replace a unionized work force, the average wage in
the construction sector is likely to rise.
All economic questions arise from the fact that resources are unlimited.
If a country has a comparative advantage in producing a product, it may not have an
absolute advantage in producing that product.
If the demand for a product increases and the supply of the product does not change,
equilibrium price and equilibrium quantity will both increase.
Optimal decisions are made at the point where marginal cost equals zero.
For the Coase theorem to work there must be clear assignment of property rights.
A monopolistically competitive firm can increase its profits beyond the long-run
equilibrium break-even level by deliberately lowering its price to force some of its
competitors out of the market.
Economic rent refers to the price of a factor of production which is fixed in supply.
If the Gini coefficient for Cartland is 1, it means that income distribution is perfectly
equal in this society.
In an optimal two-part tariff pricing schedule, consumer surplus is zero.
When UPS implemented changes which allowed it to deliver more packages with the
same number of workers and planes, this represented a positive technological change.
Price leadership is a form of explicit collusion where one firm in an oligopoly
announces a price change and expects all other firms to follow suit.
A modern example of the tragedy of the commons is the forests in many poor countries.
A fundamental assumption in game theory is that players do not interact with each
other.
A shortage occurs when the market price is lower than the equilibrium price.
The ability to engage in product differentiation is one of the factors a manager or owner
of a firm can control in order to create value for consumers.
When Audrina raised the price of her homemade cookies, her total revenue increased.
This suggests that the demand for Audrina's cookies is elastic.
In the market for factors of production, firms earn income by selling goods and services
to households.
Suppose the government wants to finance housing for low-income families by placing a
tax on the purchase of luxury homes. Assume the government defines a luxury home as
a home that is purchased for at least $1 million. This tax is consistent with the
A) benefits-received principle.
B) social equity principle.
C) ability-to-pay principle.
D) horizontal-equity principle.
Which of the following groups had the highest poverty rate in 2014 in the United
States?
A) Asians
B) blacks
C) Hispanics
D) female heads of families
Which of the following activities create a negative externality?
A) cleaning up the sidewalk on your block
B) graduating from college
C) repainting the house you live in to improve its appearance
D) keeping a junked car parked on your front lawn
Marginal analysis involves undertaking an activity
A) until its marginal costs start declining.
B) only when its marginal benefits are positive.
C) until its marginal benefits equal marginal costs.
D) only if its marginal costs are greater than its marginal benefits.
In a study conducted by Marianne Bertrand and Sendhil Mullianthan, identical resumes
were sent in response to help wanted ads in newspapers, with half of the resumes
assigned an African-American-sounding name and half assigned a white-sounding
name. The study found that
A) employers were equally likely to interview workers with white-sounding names and
with African-American-sounding names.
B) employers were 50 percent more likely to interview workers with
African-American-sounding names.
C) employers were 50 percent more likely to interview workers with white-sounding
names.
D) no employers chose to interview workers with African-American-sounding names.
Figure 18-1
Refer to Figure 18-1. The excess burden of the tax is represented by the area
A) B + C.
B) F + G.
C) E + H.
D) B + C + F + G.
Which of the following statements describes economists' attitudes regarding the
influence of social factors on the choices consumers make?
A) Economists formerly believed they were very important but now they believe they
are not important.
B) Economists believe social factors affect consumer choice in markets for public
goods but not in markets for private goods.
C) Liberal economists believe social factors are very important; conservative
economists do not believe social factors have any influence on consumers.
D) Economists traditionally believed they were unimportant, but many economists now
believe social factors are important.
Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was
the maximum price he was willing to pay. On the day of the performance of the play
Adam refuses to sell the ticket for $150. How would behavioral economists explain
Adam's refusal to sell his ticket?
A) Adam's tastes had changed from the time he bought the ticket to the time of the
performance of the play.
B) When Adam bought the ticket he was being unrealistic about his future behavior.
C) The endowment effect explains Adam's actions. People like Adam seem to value
things that they have more than the things they do not have.
D) Adam's income probably increased between the time he bought the ticket and the
day of the play's performance.
Which of the following describes a difference between the marginal revenue and
demand curves of a perfectly competitive firm and a monopolistically competitive firm?
A) The perfectly competitive firm's marginal revenue and demand curves are the same;
the marginal revenue curve of a monopolistically competitive firm lies above its
demand curve.
B) The perfectly competitive firm's marginal revenue and demand curves are the same;
the marginal revenue curve of a monopolistically competitive firm lies below its
demand curve.
C) The monopolistically competitive firm's marginal revenue and demand curves are
the same; the marginal revenue curve of a perfectly competitive firm lies below its
demand curve.
D) The marginal revenue curve of a monopolistically competitive firm lies below its
demand curve; the marginal revenue curve of a perfectly competitive firm lies above its
demand curve.
Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3
per unit. Assume that labor is the only input. If the last worker hired increases output by
three units per hour, then to maximize profits the firm should
A) not change the number of workers it currently hires.
B) lay off some of its workers.
C) hire additional workers.
D) There is not enough information to answer the question.
In the United States
A) the income tax system has little or no impact on the distribution of income.
B) the after-tax income distribution of income is more equal than the before-tax
distribution.
C) once a person is in poverty, it is very difficult for a person to get out of poverty.
D) the degree of income mobility is relatively low.
If the labor supply is unchanged, an increase in the demand for labor will
A) increase the equilibrium wage and decrease the number of workers employed.
B) increase the equilibrium wage and increase the quantity of jobs demanded.
C) decrease the equilibrium wage and increase the number of workers employed.
D) increase the equilibrium wage and increase the number of workers employed.
Most economists believe that a small amount of the gap between the wages of white
males and the wages of other groups is due to discrimination. Which of the following
factors is not another factor that explains part of this gap?
A) differences in education
B) geographic location
C) differences in experience
D) differing preferences for jobs
In the legal sector, some practice areas have declined in recent years. For example,
personal-injury and medical-malpractice cases have been undercut by state laws
limiting class-action suits, out-of-state plaintiffs, and payouts on damages, and
securities class-action litigation has declined in part because of a buoyant stock market.
How does this affect the market for lawyers?
A) The demand for lawyers shifts to the left.
B) The supply of lawyers shifts to the left.
C) The quantity of lawyers demanded decreases and this is represented by a movement
along the demand curve.
D) Both the demand and supply curves decrease.
Figure 5-4
Suppose there are several paper mills producing paper for a market. These mills,
located upstream from a fishing village, discharge a large amount of wastewater into the
river. The waste material affects the number of fish in the river and the use of the river
for recreation and as a public water supply source. Figure 5-4 shows the paper market.
Use this Figure to answer the following question(s).
Refer to Figure 5-4. What does S2 represent?
A) the market supply curve that reflects social cost
B) the market supply curve that reflect private cost
C) the market supply curve that reflects external cost
D) the market supply curve that reflects social benefit
Figure 16-3
Chantal owns a hairdressing salon which caters to two main groups of customers:
residents of "The Chateau," a retirement community, and other residents in the
neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement
community, labeled Market A, and other residents in the neighborhood, labeled Market
B. The demand curves are not identical.
Refer to Figure 16-3. Suppose Chantal practices price discrimination. Which of the
following statements is true?
A) Chantal's profits will be higher if she has uniform pricing instead of different prices
for different groups of customers.
B) By charging a higher price in market B, Chantal has transferred some of the
consumer surplus from customers in market B to customers in market A.
C) By charging different prices in markets A and B, Chantal can transfer some producer
surplus into economic profit.
D) By charging a higher price in market B, Chantal can convert some consumer surplus
into economic profit.
There are two conditions necessary for a consumer to maximize her utility. One is that
the marginal utilities per dollar spent on each good and service consumed are equal.
What is the other condition?
A) Total spending on all goods and services must equal the amount available to be
spent.
B) The consumer must be satisfied with the choices she makes.
C) The total spent on each good and service is the same.
D) The prices of each good and service consumed must not be too high.
What is shown on a firm's income statement?
A) costs
B) profits
C) revenues
D) All of these are shown on a firm's income statement.
Figure 4-3
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a
price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40in
order to raise the price to $18.
Refer to Figure 4-3. At the equilibrium price of $15 consumers are willing to buy 80
pounds of tiger shrimp. Is this an economically efficient quantity?
A) No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.
B) Yes, because marginal cost is zero at the 80th unit.
C) Yes, because $15 is the price where the marginal benefit is equal to the marginal
cost.
D) No, the marginal cost of the 80th unit exceeds the marginal benefit of the 80th unit.
In February, market analysts predict that the price of titanium will rise in March. What
happens in the titanium market in February, holding everything else constant?
A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity of titanium demanded and the quantity of titanium supplied both
increase.
D) The demand curve shifts to the left.
Letters are used to represent the terms used to answer this question: price (P), quantity
of output (Q), total cost (TC) and average total cost (ATC). Which of the following
equations is equal to a firm's average profit?
A) P - ATC
B) (P - ATC) × Q
C) (P × Q) - TC
D) P - TC
If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other
things equal, an increase in the price of the Apple Watch will
A) decrease the demand for the Apple Watch.
B) increase the demand for the Gear S2.
C) increase the quantity demanded for the Gear S2.
D) increase the quantity demanded for the Apple Watch.
Specializing in the production of a good or service in which one has a comparative
advantage enables a country to do all of the following except
A) engage in mutually beneficial trade with other nations.
B) increase the variety of products that it can consume with no increase in resources.
C) consume a combination of goods that lies outside its own production possibilities
frontier.
D) produce a combination of goods that lies outside its own production possibilities
frontier.
Table 14-8
Two rival oligopolists in the athletic supplements industry, the Power Fuel Company
and the Brawny Juice Company, have to decide on their pricing strategy. Each can
choose either a high price or a low price. Table 14-8 shows the payoff matrix with the
profits that each firm can expect to earn depending on the pricing strategy it adopts.
Refer to Table 14-8. If Brawny Juice selects a high price, what is Power Fuel's best
strategy and what will Power Fuel earn as a result of this strategy?
A) Power Fuel will select a low price and earn $8 million.
B) Power Fuel will select a low price and earn $16 million.
C) Power Fuel will select a high price and earn $12 million.
D) Power Fuel will select a high price and earn $16 million.
What is the central role of financial intermediaries in a market economy?
A) the creation and printing of money
B) keeping the price level stable
C) bringing together savers and borrowers
D) providing safe deposit boxes for people and businesses
If the price of automobiles was to increase, then
A) the demand for gasoline would decrease.
B) the demand for gasoline would increase.
C) the supply of gasoline would increase.
D) the quantity of gasoline demanded would decrease.
Compensating differentials are
A) non-monetary benefits from being employed, such as health-care benefits.
B) wages paid to workers where the supply of labor is great relative to demand.
C) higher wages that compensate workers for unpleasant aspects of a job.
D) higher wages that compensate the more experienced workers in a field.
Figure 11-1
Refer to Figure 11-1. The marginal product of the 3rd worker is
A)
B)
C)
D)
Microeconomics is the study of
A) how households and firms make choices.
B) the economy as a whole.
C) the global economy.
D) topics such as unemployment, inflation, and economic growth.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many hats will Belize gain compared to the "without trade" numbers?
A) -100
B) 0
C) 150
D) 250
How is economic profit found?
Some environmentalists have criticized tradable emission allowances on the grounds
that they give permit holders a license to pollute. Furthermore, environmentalists argue
that those who sell their permits receive a monetary benefit from their contribution to
polluting the environment. Use economic reasoning to evaluate this criticism.
What is a centrally planned economy?
Explain the concepts of cross-price elasticity of demand and income elasticity of
demand. What do positive and negative values indicate for each of these demand
elasticities?
How do unlimited and limited liability differ?
What is the relationship between market failure and government failure?
Assuming a market price of $4, fill in the columns in the following table. What is the
profit-maximizing level of production? What are the two ways to determine the
profit-maximizing level of production?
What is meant by "tax incidence"?
What is marginal utility and what is the law of diminishing marginal utility?
What factors would make you more sensitive or less sensitive to price when purchasing
gasoline?
In 2014, which type of tax raised the most revenue for the U.S. federal government?
Which type of tax raised the most revenue for state and local governments?
Explain what potential conflict exists between shareholders in a corporation and the
corporation's managers.
What is a monopoly? Can a firm be a monopoly if close substitutes for its product
exists?
Describe the relationship between marginal cost and average total cost.
The graph below represents the market for walnuts. Identify the values of the marginal
benefit and the marginal cost at the output levels of 2,000 pounds, 4,000 pounds, and
6,000 pounds. At each of these output levels, state whether output is inefficiently high,
inefficiently low, or economically efficient.
What effect does the entry of new firms in a monopolistically competitive market have
on the economic profits of existing firms in the market? How might existing firms
attempt to counteract this effect?
