The optimal level of water and air quality
a. is zero, which is a pollution-free environment
b. occurs when the marginal private cost of air quality equals its marginal social cost
c. is greater if the marginal social cost curve of air quality shifts downward
d. occurs when all negative externalities are eliminated
e. eliminates the common pool problem
In perfect competition, if one firm raises its price,
a. others will follow
b. that firm will increase its revenues
c. that firm will lose revenues because other firms will not follow
d. all consumers will be adversely affected
e. the market demand curve will shift
Public goods are both rival and nonexclusive.
a. True
b. False
Which of the following statements is true?
a. Interest rates charged to well-known corporations are higher than rates charged to
individuals because corporations can afford it.
b. If people expect higher rates of inflation, the market interest rate will decrease
because fewer people will borrow.
c. Interest rates in unstable countries are lower than rates in stable countries.
d. The risk cost of doing business in a high-crime area is greater and the cost of
borrowing is, therefore, greater there.
e. The lower the tax rate, the greater the cost of borrowing.
Which of the following is not “means-tested”?
a. Temporary Assistance for Needy Families (TANF)
b. welfare programs
c. the Food Stamp program
d. Social Security payments to a retiree
e. free and reduced price school lunches for the poor
A floating exchange rate
a. is determined by the national governments involved
b. remains extremely stable over long periods of time
c. is determined by the actions of central banks
d. is allowed to vary only within a narrow range
e. adjusts in response to market forces
An economist would classify 100 shares of Apple Computer stock as capital.
a. True
b. False
The marginal rate of technical substitution is the rate at which
a. one product can be substituted for another without affecting total production cost
b. one product can be substituted for another without affecting total expenditure by the
buyer
c. one product can be substituted for another without affecting total utility
d. one input can be substituted for another without affecting total production cost
e. one input can be substituted for another without affecting total output
Exhibit 6-1
Consider Exhibit 6-1 which shows the total utility derived from various numbers of
glasses of milk consumed in a day. The marginal utility of the first glass of milk is
a. 0 units of utility
b. 5 units of utility
c. 8 units of utility
d. 12 units of utility
e. 14 units of utility
The statement that there is a direct relation between x and y means that
a. x and y move in the same direction
b. x causes y
c. y causes x
d. either y causes x or x causes y
e. the causal connection between x and y is immediate
The Herfindahl index is the sum of the squared market shares of the four largest firms
in an industry.
a. True
b. False
Household production is more likely to occur when
a. it requires many specialized resources
b. technology makes it more costly than market production
c. tax avoidance is undesirable
d. more control over the final product is desirable
e. all of the above
The production possibilities frontier represents the boundary between attainable and
unattainable prices of commodities.
a. True
b. False
Tax preparation services and IRS tax publications can be considered substitutes.
a. True
b. False
When using the economic efficiency approach to controlling air and water pollution, the
government
a. forces each firm to produce emissions in the most cost efficient manner irrespective
of its cost structure
b. offers each firm the flexibility to reduce emissions in the most cost effective manner,
given its unique cost structure
c. offers each firm the option of choosing between the cost minimizing emission level
and the profit maximizing emission level
d. provides each firm with some fixed rules and then requires them to maximize profits
given these fixed rules
e. offers each firm the option of using marginal cost pricing and average cost pricing
when determining the optimum emissions levels
The Coase theorem argues that the assignment of property rights will generate an
efficient solution to the problem of
a. positive externalities as long as bargaining costs are small
b. negative externalities as long as bargaining costs are small
c. negative externalities as long as bargaining costs are great
d. any type of market failure
e. any type of market failure that involves high transaction costs
Exhibit 6-23
In Exhibit 6-23, the marginal rate of substitution of clothing for food between points b
and c is
a. unable to be determined
b. 2
c. 1/3
d. less than 1/3
e. 0
Exhibit 10-18
In Exhibit 10-18, the monopolistic competitor will
a. lose $10
b. lose $15
c. break even
d. earn $25 profit
e. earn $30 profit
Which of the following would probably notbe considered a natural monopoly?
a. a municipal water company
b. the local telephone industry
c. the cable television industry
d. natural gas and electric companies
e. the automobile industry
Inferior goods have an income elasticity of demand that is
a. positive
b. negative
c. 0
d. greater than 1 in absolute value
e. equal to 1 in absolute value
Under the rule of reason, no firm with a large market share could be found guilty of
violating the Sherman Antitrust Act.
a. True
b. False
Which of the following is not related to adverse selection in insurance markets?
a. An insurance company has no way of distinguishing among applicants
b. An insurance company must charge a higher price to applicants who are good health
risks
c. The price of insurance is attractive to poor health risks, but not to good ones
d. The insured group becomes less healthy on average
e. Because of the relative unhealthiness of the insured group, rates must rise
In the short run, a perfectly competitive firm suffering a loss
a. will close if P < AVC
b. will shut down operations if P < MC
c. cannot leave the industry even if P < AVC
d. can sell off all its resources to competitors
e. can raise the price to increase revenues
Assume the United States has only one trading partner. The U.S. demand curve for
foreign currency is drawn while holding constant all of the following factors except
one. Which is the exception?
a. incomes of U.S. consumers
b. the exchange rate
c. the expected rate of inflation in the U.S.
d. the foreign prices of foreign goods
e. U.S. interest rates relative to foreign interest rates
Foreign aid often becomes a source of discretionary funds that benefit poor people in
developing countries and not the countries’ leaders.
a. True
b. False
A leftward shift of the European demand curve for foreign exchange will
a. decrease the price of foreign exchange in Europe
b. increase the price of foreign exchange in Europe
c. decrease the value of the euro
d. make foreign goods more expensive in terms of euros
e. make European goods less expensive in terms of foreign exchange
Which of the following is not a threat to bricks-and-mortar video rental stores?
a. on-demand movies delivered by broadband cable
b. rental services that deliver DVDs by mail
c. digital movies and TV shows available on Wal-Mart’s Web site
d. None of the answers is a threat.
e. All of the answers are threats.
Cash payments for steel to be used in production would be an example of
a. sunk costs
b. fixed costs
c. explicit costs
d. implicit costs
e. entrepreneurial costs
Which of the following is a justification for taxes?
a. the ability-to-pay principle
b. the progressive tax principle
c. the proportional tax principle
d. the regressive tax principle
e. the desire of the government to spend more funds
Exhibit 4-14
Refer to exhibit 4-14. The discovery that breast milk provides more protection against
disease than baby formula will cause which of the following to happen?
a. a movement from a to b on demand curve D1
b. a demand shift from D1 to D2
c. movement from c to d on demand curve D2
d. demand shift from D2 to D1
e. either a or b