Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price
_____ of _____ will bring about the same price and output in the market for yachts as
would an excise tax of $30,000.
A) ceiling; $80,000
B) ceiling; $100,000
C) floor; $120,000
D) floor; $140,000
Total surplus is:
A) the sum of consumer and producer surplus.
B) measured as the area between the supply and demand curves from their beginnings
to their ends.
C) the total net gain to consumers from trading in the market.
D) the total net gain to producers from trading in the market.
The monopoly firm’s profit-maximizing price is:
A) given by the point on the ATC curve for the profit-maximizing quantity.
B) given by the point on the demand curve for the profit-maximizing quantity.
C) determined for the quantity of output at which MR > MC by the greatest amount.
D) found where MR > MC at the monopolist’s profit-maximizing quantity of output.
A perfectly competitive firm will incur an economic loss but will continue producing
output in the short run if the price is:
A) less than marginal cost.
B) greater than average fixed cost and less than average variable cost.
C) greater than average total cost.
D) greater than average variable cost but less than average total cost.
When the government removes a binding price floor:
A) quantity demanded will decrease and quantity supplied will increase.
B) quantity demanded will increase and quantity supplied will decrease.
C) excess demand will develop.
D) excess supply will develop.
Figure: Pollution and Efficiency
(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this
market, whose sulfur emissions are a result of production, an efficient solution takes
place at a price of _____ and a quantity of _____.
A) $5; 40
B) $15; 30
C) $25; 30
D) $15; 15
If the United States removed all excise taxes on cigarettes, which of the following
would NOT occur?
A) a decrease in producer surplus
B) an increase in producer surplus
C) an increase in consumer surplus
D) an increase in total surplus
Which of the following statements is TRUE?
A) Leisure is a normal good.
B) Leisure is an inferior good.
C) All other things unchanged, an increase in income will decrease the demand for
leisure.
D) The demand for leisure is perfectly inelastic.
The field of law that attempts to limit the ability of oligopolists to collude and restrict
competition is called:
A) antitrust policy.
B) product safety policy.
C) fuel efficiency standards.
D) excise tax policy.
The profit-maximizing rule MC = MR is followed by firms operating in:
A) monopolistic competition but not perfect competition.
B) perfect competition but not monopolistic competition.
C) either monopolistic competition or perfect competition, depending on the costs of
production.
D) both monopolistic competition and perfect competition.
A familiar example of a negative externality is traffic congestion. In principle, it should
be possible to internalize this externality by permitting drivers to negotiate rights to
drive during particular times. The most likely reason that this does NOT happen is that:
A) most individuals are unfamiliar with the Coase theorem.
B) the transaction costs associated with identifying and establishing communication
among the many interested parties would be prohibitive.
C) agreements arising from such negotiations could not be enforced, since the
Constitution guarantees all individuals freedom of access to all public roads.
D) lawyers would find a way to prohibit such negotiations unless they were actively
involved, and this would make transaction costs prohibitive.
The price in long-run equilibrium for a monopolistically competitive firm is _____ and
output is _____, compared to that of a perfectly competitive firm with an identical
production function and cost curves.
A) higher; higher
B) higher; smaller
C) lower; higher
D) lower; smaller
A tax that takes a _____ is _____.
A) fixed percentage of income; proportional
B) fixed percentage of income; a benefits tax
C) a smaller share of high income than of low income; progressive
D) larger share of high income than of low income; regressive
An individual consuming two goods, X and Y, has the usual downward-sloping, convex
indifference curves. All EXCEPT one of the following will characterize the optimal
consumption point. Which is the EXCEPTION?
A) the intersection of an indifference curve and the budget line at the optimal point
B) tangency between an indifference curve and the budget line at the optimal point
C) the optimal consumption point lying on the budget line
D) maximal utility at the optimal consumption point
Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $60,000 tax on yachts (collected from the producers), consumers
will pay _____ of the tax and producers will pay _____.
A) $30,000; $30,000
B) $40,000; $20,000
C) $20,000; $40,000
D) $10,000; $50,000
Figure: Consumer and Capital Goods
(Figure: Consumer and Capital Goods)
Look at the figure Consumer and Capital Goods. Point Z:
A) is unattainable, all other things unchanged.
B) is attainable if the economy is able to reach full employment.
C) is attainable if the quantity and/or quality of factors decreases.
D) will be attained as soon as the economy becomes efficient and moves to curve 2.
Decreases in the price of the good measured on the horizontal axis will make the
horizontal intercept _____ and make the budget line _____.
A) larger; steeper
B) larger; flatter
C) smaller; steeper
D) smaller; flatter
As long as people have different _____, everyone has a comparative advantage in
something.
A) direct costs
B) benefits
C) utility
D) opportunity costs
Figure: Monopolistic Competitor
(Figure: Monopolistic Competitor) The firm shown in the figure Monopolistic
Competitor may engage in advertising because:
A) it does not know any better.
B) its price is greater than its MC.
C) its profits are negative.
D) this will decrease its excess capacity levels.
Suppose that the market for haircuts in a community is perfectly competitive and that
the market is initially in long-run equilibrium. Subsequently, an increase in population
increases the demand for haircuts. In the short run, the market price will _____ and the
output of a typical firm will _____.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Figure: The Market for Melons in Russia
(Figure: The Markets for Melons in Russia) Look at the figure The Market for Melons
in Russia. If Russia is trading based on comparative advantage and the world price is D,
then Russia has _____ in the production of melons.
A) a comparative advantage
B) a comparative disadvantage
C) an absolute advantage
D) neither an absolute nor a comparative advantage
Figure: Differences in Risk Aversion
(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion.
An important reason Ernest and Salvatore may differ in their aversion to risk is:
A) the way their marginal utility is affected by income.
B) their understanding of risk.
C) their initial wealth holding or initial income level.
D) the way their marginal utility is affected by income and their initial wealth holding
or initial income level.
If the marginal social benefit received from a good is greater than the marginal social
cost of production:
A) an increase in production will improve society’s well-being.
B) a decrease in production will improve society’s well-being.
C) no change in production can improve society’s well-being.
D) the market is producing too much of the good.
Asymmetric, or private, information:
A) is an important explanation of the variation (or asymmetric performance) of
individuals on standardized tests.
B) refers to personal information (e.g., regarding gender or ethnicity) that a person is
not obligated to reveal on a job application.
C) is relevant for an economic transaction and is known only by some of the people
involved in the transaction.
D) is protected by patents or copyrights.
A shift of a demand curve to the right, all other things unchanged, will:
A) increase equilibrium price and quantity.
B) decrease equilibrium price and quantity.
C) decrease equilibrium quantity and increase equilibrium price.
D) increase equilibrium quantity and decrease equilibrium price.
(Table: Willingness to Pay for Basketball Sneakers) The table Willingness to Pay for
Basketball Sneakers shows each player’s willingness to pay for basketball sneakers.
Assume that each player wants to buy at most, one pair of sneakers. If the price of
basketball sneakers is $145, which player will purchase sneakers?
A) Jamichael
B) Corey
C) Rudy
D) Ray
In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend Ava
can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10
cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie
production?
A) Kessy
B) Ava
C) Ian
D) Kessy and Ava have the same opportunity cost in cookie production.
At quantities less than the long-run minimum cost per unit of output, the long-run
average total cost curve is _____ of the corresponding short-run average total cost
curve.
A) tangent to the minimum
B) tangent to the maximum
C) to the right of the minimum
D) to the left of the minimum