1) From the viewpoint of a firm, competition can come even from other firms that are
not in the same industry.
2) Because of their large-scale level of production, pure monopolists overallocate
resources to their industry by producing beyond the P = MC output.
3) Producer surplus is the difference between the market price a producer receives for a
product and the minimum price producers are willing to accept for a product.
4) If market demand increases and market supply decreases, the change in equilibrium
price is unpredictable without first knowing the exact magnitudes of the demand and
supply changes.
5) An advantage of direct foreign investment (compared to foreign loans) is that
management skill and technological knowledge often accompany such capital flows.
6) Barriers to free trade impair efficiency in the international allocation of resources.
7) If a nation has a balance of payments deficit and exchange rates are flexible, the
price or value of that nation’s currency in the foreign exchange markets will rise.
8) Economic research consistently finds that immigration negatively impacts the
average American wage.
9) More than 50% of local and state employees are employed in the education sector.
10) When the marginal benefits exceed the marginal costs of producing a product, then
allocative efficiency is not achieved in the market.
11) Answer the question on the basis of the following information. Assume that by
devoting all its resources to the production of X, nation Alpha can produce 20 units of
X. By devoting all its resources to Y, Alpha can produce 30Y. Comparable figures for
nation Beta are 60X and 40Y.
Refer to the given information. There is no basis for trade between Alpha and Beta
because Beta has an absolute advantage in the production of both goods.
12)
Refer to the payoff matrix. Bob’s Burgers and Sam’s Sandwiches are competing
restaurants in a small town. Both are considering adding pizza to their line of products.
If this is a one-time simultaneous game:
A.both firms have a dominant strategy to add pizza to their menu.
B.both firms have a dominant strategy to not add pizza to their menu.
C.a Nash equilibrium occurs either when both add pizza or both do not add pizza.
D.neither firm has a dominant strategy.
13) If someone produced too much of a good, this would suggest that:
A.rational choice cannot be applied to many economic decisions.
B.the good was produced past the point where its marginal cost exceeded its marginal
benefit.
C.certain goods and services such as education and health care are inherently desirable
and should be produced regardless of costs and benefits.
D.the good was produced to the point where its marginal benefit exceeded its marginal
cost.
14) Approximately what percentage of start-up firms in the United States go bankrupt
within the first two years?
A.3.5
B.10.2
C.22
D.53
15) Suppose the balance on the current account is +$50 billion and the balance on the
capital account is +$1 billion. The balance on the financial account is:
A.-$51 billion.
B.-$50 billion.
C.-$49 billion.
D.+$51 billion.
16) Which of the following, in order, describes the three steps of the demographic
transition?
A.Low birthrates and death rates; high birthrates and low death rates; high birthrates
and death rates.
B.High birthrates and death rates; low birthrates and high death rates; low birthrates and
death rates.
C.High birthrates and low death rates; high birthrates and death rates; low birthrates and
death rates.
D.High birthrates and death rates; high birthrates and low death rates; low birthrates
and death rates.
17)
Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output,
this firm’s total profit will be:
A.$82.
B.zero.
C.$54.
D.$27.
18) Minimum wage in the U.S. is:
A.Set at the federal level, and all states abide by that level
B.Set at the federal level, but many states set their own minimums that are higher than
the federal level
C.Set at the federal level, but many states set their own minimums that are lower than
the federal level
D.Set at the state level, not by the federal government
19) Assume the demand for automobile tires is highly inelastic and that the supply is
highly elastic. The burden of a $2 excise tax on each tire will be:
A.borne by resource suppliers that provide the inputs for manufacturing tires.
B.shared about equally by buyers and sellers of tires.
C.borne primarily by buyers of tires.
D.borne primarily by sellers of tires.
20) The antitrust laws are enforced by the:
A.Federal Bureau of Investigation.
B.Antimonopoly Court of Appeals.
C.Federal Justice Department and the Federal Trade Commission.
D.Department of Commerce.
21) At equilibrium in a market for a product, the total revenues received by sellers equal
the:
A.Market producer surplus
B.Total amount spent by buyers on the product
C.Total profits of sellers
D.Market consumer surplus
22) If some firms leave a monopolistically competitive industry, the demand curves of
the remaining firms will:
A.be unaffected.
B.shift to the left.
C.become more elastic.
D.shift to the right.
23)
Refer to the above supply and demand graph. S1 and D1 represent the current market
supply and demand, respectively. S2 and D2 represent the socially optimal supply and
demand. One way that the government could shift demand to its socially optimal level
is to:
A.Tax the sellers
B.Tax the buyers
C.Subsidize the sellers
D.Subsidize the buyers
24)
Refer to the above graph showing the revenue curves for a monopolist. If it wants to
sell quantity Q1, it must charge a price:
A.P1
B.P2
C.0
D.Not labeled on the graph
25) When average variable cost is at a minimum:
A.Marginal cost is at a maximum
B.The average product of labor is at a minimum
C.The marginal product of labor is at a minimum
D.The average product of labor is at a maximum
26) When the value of a product to each user, including existing users, increases due to
an increase in the total number of users, we refer to this as:
A.Income transfer
B.Price discrimination
C.Simultaneous consumption
D.Network effects
27) A firm’s resource input, total output of labor, and product price schedules are given
below. If labor is the only variable input, how much labor should the firm employ if the
wage rate is $15 per day?
A.3 units
B.4 units
C.6 units
D.5 units
28) Assume a firm faces these costs: total cost of capital = $4000; price paid for labor =
$20 per labor unit; and price paid for raw materials = $8 per raw-material unit.
(a)If the firm can produce 2000 units of output by combining its fixed capital with 200
units of labor and 500 units of raw materials, then what are the total cost and average
total cost of producing the 2000 units of output?
(b)The firm now improves its production process so that it can produce 3000 units of
output by combining its fixed capital with 100 units of labor and 500 units of raw
materials. What are the total cost and average cost of producing the 3000 units of
output?
(c)Based on the data, what conclusion can you draw about the effect of process
innovation on economic efficiency?
29) Distinguish between a balance-of-payments surplus and a balance-of-payments
deficit in terms of payments of official reserves.
30) What is consumer equilibrium? How is it achieved?
31) How do limited and bundled choice contribute to government inefficiency?
32) Explain the relationship between the price elasticity of demand and price
discrimination. Give two examples.
33) Given the following information on the tax paid for different levels of taxable
income, fill in the average and the marginal tax rates for each income level. Also
explain how to calculate the average tax rate and the marginal tax rate. Is this tax
progressive?
34) What are four significant reasons for studying resource pricing?
35) What are the three conditions that must exist when there is allocative efficiency?
36) What are the likely trends for the demand for and the supply of resources in the
future?
37) What is the main determinant of the price elasticity of supply? Explain.