If the slope of a straight line is 4 and if Y (the variable on the vertical axis) decreases by
20, then X (the variable on the horizontal axis)
A) increases by 5.
B) decreases by 5.
C) increases by 80.
D) decreases by 80.
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise
from air traffic negatively affects individuals living in Playa Del Rey, however, this cost
is not considered by airlines or air travelers. The airlines feel they have a right to use the
airspace while the individuals living in Playa Del Rey feel they have the right to quiet.
The following diagram depicts the marginal costs and marginal benefits associated with
air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the airlines. No
negotiations occur between the parties. The resulting level of air travel is ________.
A) 0 units
B) 100 units
C) 120 units
D) Indeterminate from the given information.
Table 8.5
Refer to Table 8.5. Assume that fruit baskets are sold in a perfectly competitive market.
The market price of a fruit basket is $15. To maximize profits, Exotic Fruit should sell
________ fruit baskets and their profit is ________.
A) zero; $0
B) two; -$35
C) three; -$26
D) five; -$21
A player chooses a maximin strategy to ________ gain the player can earn.
A) minimize the minimum
B) maximize the maximum
C) maximize the minimum
D) minimize the maximum
During 2013, Victor’s consumption equals $30,000 and the change in his net worth is
-$5,000. Victor’s economic income for 2013 is
A) $5,000.
B) $25,000.
C) $30,000.
D) $35,000.
All of the following statements about asymmetric information are true EXCEPT:
A) Asymmetric information occurs when one party to a transaction has relevant
information to the transaction that the other party does not have.
B) Asymmetric information creates market failures because it makes it harder for
individuals to engage in transactions that would take place in the presence of perfect
information.
C) Asymmetric information can only be solved through government intervention.
D) Asymmetric information occurs in the market for used cars and in the insurance
market.
As a result of an increase in the payroll tax that employers must pay on their
employees wages, employers reduce the starting wage for new employees. This is an ʹ
example of
A) tax shifting.
B) tax incidence.
C) a regressive tax.
D) tax avoidance.
Suppose a policy change will generate $100,000 of benefits for low-income families
and $120,000 of costs for high-income families. This change can best be described as
A) Pareto efficient.
B) inefficient.
C) potentially efficient.
D) equitable.
We can write the cost minimizing equilibrium condition as
A) MPL = MPK.
B) PL = PK.
C) (MPL)(PL) = (MPK)(PK).
D) MPL/PL = MPK/PK.
Related to the Economics in Practice on page 175: When there are a few empty seats on
an airline flight, the marginal cost of adding extra passengers to occupy those seats
A) is probably close to zero.
B) will be negative.
C) is generally quite high.
D) will primarily depend on the number of passengers waiting to get the seats.
Figure 8.4
Refer to Figure 8.4. After Point A,
A) average total costs are increasing.
B) marginal costs are decreasing.
C) average variable costs are decreasing.
D) average variable costs are increasing.
Figure 5.5
Refer to Figure 5.5. As the price of good W decreased, the demand for good Y shifted
from D1 to D2. The cross-price elasticity of demand between W and Y is
A) positive.
B) negative.
C) zero.
D) indeterminate from this information.
Specialization and trade allow a country to
A) produce and consume on its production possibility frontier.
B) produce and consume inside its production possibility frontier.
C) produce and consume outside its production possibility frontier.
D) produce on its production possibility frontier and consume outside it.
The government uses ________ figures contained in the Herfindahl-Hirschman Index
(HHI) to help determine whether or not it will challenge a proposed merger.
A) market share
B) firm size
C) barriers to entry
D) profit
For inferior goods, demand will fall when
A) income increases.
B) income decreases.
C) price increases.
D) price decreases.
Related to the Economics in Practice on page 157: Suppose you own a truck and use it
to deliver merchandise to retailers and hire a driver to make such deliveries. At higher
rates of speed the truck gets fewer miles per gallon of gas. Holding all else constant, as
the price of gasoline continues to rise
A) you will instruct your driver to drive faster.
B) you will instruct your driver to drive slower.
C) you will ask your driver to change their driving in any way.
D) you will make more deliveries to cover the increasing cost of fuel.
Lettuce and spinach are substitutes. Lettuce and tomatoes are complements. Lettuce is a
normal good. During the winter, about 20% of the lettuce crop was destroyed by
flooding.
If at the same time that part of the lettuce crop was destroyed, consumer income also
decreased, then, ceteris paribus, in the market for lettuce this would have caused
A) both the equilibrium price and quantity to decrease.
B) the equilibrium price to increase and the equilibrium quantity to decrease.
C) the equilibrium price to decrease. The equilibrium quantity could have increased,
decreased, or remained the same.
D) the equilibrium price to either increase, decrease, or remain the same and the
equilibrium quantity to decrease.
A monopolist’s supply of a good is
A) dependent on the monopolist’s demand curve and its marginal cost curve.
B) given by the portion of the monopolist’s marginal cost curve that lies above the
average variable cost curve.
C) independent of the monopolist’s demand curve.
D) given by the portion of the monopolist’s average variable cost curve that lies above
the marginal cost curve.
The terms of trade refers to
A) the documents that two countries sign in order to facilitate trade.
B) the conditions imposed by the importing country regarding the quality of the
imported goods.
C) the exchange rate determined by the exporting and the importing countries.
D) the ratio at which one country trades a domestic product for imported product.
According to the law of demand there is ________ relationship between price and
quantity demanded.
A) a positive
B) a negative
C) either a positive or negative
D) a constantly changing
Figure 1.3
Refer to Figure 1.3. At Point A, what is the value of Y?
A) 2
B) 4
C) 6
D) 8
Figure 20.1
Refer to Figure 20.1. The opportunity cost of producing a bushel of alfalfa in Canada is
A) twice as much as that in the United States.
B) half as much as that in the United States.
C) the same as that in the United States.
D) four times as much as that in the United States.
If society will gain by producing more X, then it must be the case that currently
A) PX = MCX.
B) PX > MCX.
C) PX < MCX.
D) either PX > MCX or PX < MCX.
Firms that offer to pay for professional development for their employees are investing
in ________ capital.
A) human
B) productive
C) social
D) None of the above is correct.
Figure 18.3
Refer to Figure 18.3. If society is at Point A, the distribution is
A) inefficient because Todd’s utility is zero.
B) inefficient because both Todd and Tony can be made better off.
C) efficient because it is impossible to make Todd better off without making Tony
worse off.
D) efficient because the distribution of income is equitable.
Relating to the Economics in Practice on page 374: Considerable evidence suggests
that recently in the United States, executive compensation has ________, and the real
wage of the average worker has ________.
A) remained constant; decreased
B) decreased; decreased
C) increased; stagnated
D) increased; increased
Due to a mild winter, Florida experienced a bumper crop of oranges. This would best be
represented by a(n)
A) movement down the U.S. production possibility frontier.
B) movement off the U.S. production possibility frontier to some point inside the
frontier.
C) movement up the U.S. production possibility frontier.
D) outward shift of the U.S. production possibility frontier away from the origin.
Assume that labor is the only variable input and that the payment made to labor is
denoted as W. The ________ can be stated as W/MC.
A) marginal revenue product of labor
B) marginal product of labor
C) total cost of labor
D) total revenue from labor
The ________ to produce any given level of output is indicated by the point of
tangency between an isocost line and the isoquant corresponding to that level of output.
A) only possible way
B) most costly way
C) least costly way
D) least desirable way
Inflation and unemployment
A) are the focus of normative economics.
B) are a focus of microeconomics.
C) are a focus of positive economics.
D) are a focus of macroeconomics.
Marginal revenue is the added revenue that a firm takes in when it increases output by
________ additional unit(s).
A) no
B) one
C) all
D) Any of the above answers could be correct.
ABC Corp. is considering an investment project that costs $900 today. It expects the
project will yield income of $350 at the end of years 1, 2, and 3. If the interest rate is
10%, the firm
A) should undertake the investment.
B) should forgo the investment.
C) is just indifferent between undertaking the investment and not.
D) indeterminate from the given information
As an individual consumes ________ of a product within a given period of time, it is
likely that each additional unit consumed will yield ________ satisfaction.
A) more; successively more
B) more; successively less
C) more; no additional
D) less; negative
Given the graphs below what is the profit-maximizing level of output for a
representative firm in this purely competitive industry. Explain your answer.
Using the two graphs below determine the number of firms that are operating in this
industry.
An art museum raises its admission price, and ends up with a decrease in its total
revenue. How could you explain this situation to the museum director?
PDQ Corporation has a monopoly over the sale of its product in a small southern town.
The firm’s demand, marginal revenue, marginal cost, and average cost curves are shown
below. Find the firm’s profit-maximizing level of output and the price the firm should
charge. Is the firm earning a positive or a negative profit? Show the firm’s profit (or
loss) on the graph.
Evaluate the following statement. If a firm is suffering economic losses then the
sensible thing to do is to shut down temporarily.
Why might two Fortune 500 companies borrow the same amount of money for the
same term at the same time yet both pay a very different interest rate even when the
same banks makes both loans?
What is human capital?
Figure 9.1
Using Figure 9.1, explain what a firm would do in the short run if the market price of its
product were at P3 and it produced Q3. Is the firm earning an economic profit? Explain.
Suppose that the price elasticity of demand for museum tickets is equal to “1.8. If the
price of a museum ticket rises by 30 percent, what will happen to quantity demanded?
It is widely known among baseball enthusiasts that Babe Ruth actually performed quite
well as a pitcher before leaving the Boston Red Sox for the New York Yankees. He was
also of course a famously successful hitter. Why do you believe the Yankees chose not
to use him as a pitcher? Explain using economic reasoning. Hint: pitchers typically only
play every third or fourth game whereas other players in other positions play in nearly
every game. Baseball has a season of 162 games.
What does it mean for a good to be nonexcludable?
The Binkle Binder Corporation sells 3-ring binders in a perfectly competitive market at
a price of $3 each. The firm’s marginal cost, average total cost, and average variable
cost curves can be represented by the following:
Should the firm continue to operate in the short run? Explain.
Explain the process of logrolling.
Firms owning brand names like Coca-Cola that are so well known continue spending
hundreds of millions of dollars on advertising. Since this doesn”t seem to be an effort to
increase consumer awareness what is the possible explanation for this behavior?
Comment on the following statement: “An increase in the wage always leads to an
increase in the quantity of labor supplied.”
If revenue in the short run is less than variable costs, what should the firm do??
Sometimes you will hear managers talk about increasing the per-unit profitability of the
firm. Explain why this isn”t necessarily a sound economic approach to good business.
One popular case for protectionism is the “Protection Saves Jobs” argument. What is
the nature of this argument? What is its weakness?