When BMW, an German company, purchases a welding machine that was made in
Toronto, the purchase is
A) both a German and a Canadian import.
B) a German import and a Canadian export.
C) a German export and a Canadian import.
D) neither an export nor an import for either country.
If you expect the economy is going to boom and average income in the economy will
rise in the foreseeable future, the type of firm that would be able to increase its sales if
your expectations are met is
A) one that sells an inferior good.
B) one that sells a necessity good.
C) one that sells a luxury good.
D) one that sells a price-inelastic good.
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for
a nation.
Refer to Figure 2-4. A movement from Y to Z
A) represents an increase in the demand for plastic products.
B) is the result of a decrease in preference for food products.
C) is the result of advancements in food production technology.
D) is the result of advancements in plastic production technology.
Under autarky, domestic producer surplus is represented by the area
A) above the supply curve and below the equilibrium price.
B) above the supply curve and below the demand curve.
C) below the demand curve and above the equilibrium price.
D) above the demand curve and below the supply curve.
What is an indifference curve?
A) It is a curve that shows the total utility and the marginal utility derived from
consuming a bundle of goods.
B) It is a curve that shows the combinations of consumption bundles that give the
consumer the same utility.
C) It is a curve that ranks a consumer’s preference for various consumption bundles.
D) It is a curve that shows the tradeoff a consumer faces among different combinations
of consumption bundles.
Economic efficiency in a free market occurs when
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) the sum of consumer surplus and producer surplus is maximized.
D) price is as low as possible.
If demand is inelastic, the absolute value of the price elasticity of demand is
A) one.
B) less than one.
C) greater than one.
D) greater than the absolute value of the slope of the demand curve.
Which of the following is not a requirement for a successful price discrimination
strategy?
A) A firm must have market power.
B) The firm must be able to prevent consumers who buy a product at a low price from
reselling it to other consumers at a high price.
C) Managers must practice yield management.
D) Some consumers must have greater willingness to pay for the product than other
consumers, and the firm must be able to know what prices consumers are willing to pay.
Using cross-sectional data from the two Housing Assistance Supply Experiment
(HASE) sites–Brown County, Wisconsin, and St. Joseph County, Indiana– John
Mulford of Rand Research estimates the long-run “permanent” income elasticity of
housing expenditures to be 0.45 for owners. Using this information, what is likely to
happen to housing expenditures if the government increases income transfers to
recipients in HASE sites?
A) Housing expenditures will increase significantly.
B) Housing expenditures in HASE sites will fall significantly as recipients move out of
these areas to higher-income areas.
C) Housing expenditures will increase, but not significantly.
D) Housing expenditures will decrease by a small amount.
A large majority of the personal computers (PCs) in the United States use an operating
system purchased from Microsoft. Microsoft’s relationship with PC manufacturers is an
example of which of Porter’s competitive forces?
A) the threat from new entrants
B) the bargaining power of suppliers
C) the bargaining power of buyers
D) competition from substitute goods or services
Most movie theatres charge different prices to different groups of customers for movie
admission but not on movie popcorn. Which of the following is a reason for this?
A) because the markup on movie popcorn is very high and movie theatres do not want
to forgo this source of revenue
B) because the demand for popcorn is very high relative to the demand for movie
admissions
C) because it is easier to limit resale in movie admissions but not in popcorn
D) because the cost of operating a concession stand in a movie theatre is very high
compared to the cost of showing a movie
Consider the following economic agents:
a. the government
b. consumers
c. producers
Who, in a market economy, decides what goods and services will be produced with the
scarce resources available in that economy?
A) the government
B) producers
C) consumers
D) consumers and producers
E) the government, consumers, and producers
If a monopolistically competitive firm breaks even, the firm
A) is earning an accounting profit and will have to pay taxes on that profit.
B) is earning zero accounting and zero economic profit.
C) should advertise its product to stimulate demand.
D) should expand production.
Figure 12-5
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,
perfectly competitive industry.
Refer to Figure 12-5. The firm’s manager suggests that the firm’s goal should be to
maximize average profit. In that case, what is the output level and what is the average
profit that will achieve the manager’s goal?
A) Q = 1,350 units, average profit = $5
B) Q = 1,100 units, average profit = $6
C) Q = 1,350 units, average profit = $9
D) Q = 1,800 units, average profit = $20
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. If the market price is $3.00, what is the maximum number of
burritos that Arnold will buy?
A) 0
B) 2
C) 3
D) 4
In 2004, hurricanes destroyed a large portion of Florida’s orange and grapefruit crops.
In the market for citrus fruit
A) the supply curve shifted to the right resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium
price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
Figure 15-11
In 2011, Verizon was granted permission to enter the market for cable TV in Upstate
New York, ending the virtual monopoly that Time Warner Cable had in most local
communities in the region. Figure 15-11 shows the cable television market in Upstate
New York.
Refer to Figure 15-11. Suppose the local government imposes a $2.50 per month tax on
cable companies. What happens to the price charged by the cable company following
the imposition of this tax?
A) The price rises from PM to (PM+ $2.50).
B) The price rises from PM but it increases by an amount less than $2.50.
C) The price rises from PM but it increases by an amount greater than $2.50 to reflect
the monopoly’s markup.
D) The price remains at PM.
Two stores – Lazy Guys and Ralph’s Recliners – are located in the same city. Both stores
buy recliner chairs from the same manufacturer at the same price and both stores are
about the same size, so that the fixed costs of production for both stores are the same.
Ralph’s Recliners sells more recliners per month and Ralph’s has a lower average total
cost of production. Which of the following can explain why the average total cost of
production is lower for Ralph’s Recliners?
A) Because Ralph’s Recliners sells more output its average fixed costs are lower than
Lazy Guy’s average fixed costs.
B) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph’s
Recliners.
C) Ralph’s explicit costs are less because Ralph owns the land on which his building is
located. Lazy Guy must make lease payments for the land on which its store is located.
D) The price of recliners charged by Ralph’s is greater than the price charged by Lazy
Guys.
Consider the following pricing strategies:
a. perfect price discrimination
b. charging different prices to different groups of customers
c. optimal two-part tariff
d. single-price monopoly pricing
Which of the pricing strategies leads to the economically efficient output level?
A) a only
B) a and b only
C) a and c only
D) a, b, and c only
Demand for a luxury item, such as a yacht, is likely to be
A) both income inelastic and price inelastic.
B) both income elastic and price elastic.
C) income elastic and price inelastic.
D) income inelastic and price elastic.
Which of the following statements is true?
A) A long-run competitive equilibrium can only be achieved in constant-cost industries.
B) When an industry achieves a long-run competitive equilibrium, industry output will
not change in the future.
C) A long-run competitive equilibrium outcome is not economically efficient.
D) When an industry reaches a long-run competitive equilibrium, the typical firm in the
industry breaks even.
Congress passed the Clean Air Act in 1970. Since this act was passed, emissions of the
six main air pollutants
A) have fallen by more than one-half.
B) have increased significantly due to the growth of the U.S. economy.
C) cannot be measured since Congress failed to appropriate money to monitor the level
of emissions.
D) have remained essentially constant, even though significant economic growth has
occurred in the United States since 1970.
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for
a nation.
Refer to Figure 2-4. Consider the following events:
a. a decrease in the unemployment rate
b. general technological advancement
c. an increase in consumer wealth
Which of the events listed above could cause a movement from V to W?
A) a only
B) a and b only
C) b and c only
D) a, b, and c
Figure 9-1
Figure 9-1 shows the U.S. demand and supply for leather footwear.
Refer to Figure 9-1. Under autarky, the producer surplus is
A) $40.
B) $105.
C) $195.
D) $285.
Table 12-4
Table 12-4 shows the short-run cost data of a perfectly competitive firm. Assume that
output can only be increased in batches of 20 units.
Refer to Table 12-4. If the market price is $45, the firm
A) earn a profit of $3,600.
B) will suffer a loss of $200.
C) will break even.
D) will earn profit of $1,040.
Table 10-4
Refer to Table 10-4. For steak and cheese sandwiches and grilled chicken sandwiches,
the table contains the values of the marginal utility (MU) and marginal utility per dollar
(MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese sandwiches and
grilled chicken sandwiches. Which of the following statements is true?
A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and
two grilled chicken sandwiches.
B) If Mabel was maximizing her utility when spending $14 and then received an
additional $4, she would receive the most marginal utility per dollar if her next
purchase was another grilled chicken sandwich.
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6
she will buy three grilled chicken sandwiches.
D) To maximize her utility, Mabel will need a total of $36, the income needed to buy 6
steak and cheese sandwiches and 6 grilled chicken sandwiches.
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D2 and S1 (point C). Which of
the following changes would cause the equilibrium to change to point B?
A) A positive change in the technology used to produce apples and decrease in the price
of oranges, a substitute for apples.
B) An increase in the wages of apple workers and an increase in the price of oranges, a
substitute for apples.
C) An increase in the number of apple producers and a decrease in the number of apple
trees as a result of disease.
D) A decrease in the wages of apple workers and an increase in the price of oranges, a
substitute for apples.
In evaluating the degree of economic efficiency in a market, we can state that the size
of the deadweight loss in a market will be smaller
A) the greater the difference between marginal cost and price.
B) the smaller the difference between marginal cost and average total cost.
C) the smaller the difference between marginal cost and price.
D) the greater the difference between marginal cost and average revenue.
If a supply curve is a horizontal line, supply is said to be
A) perfectly inelastic.
B) unit elastic.
C) inelastic.
D) perfectly elastic.
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. If the two countries specialize and trade, who should export
guitars?
A) There is no basis for trade between the two countries.
B) Ireland
C) Scotland
D) They should both be exporting guitars.