The income elasticity of demand measures:
A) how much the quantity demanded changes in response to a price change.
B) how much a consumer can buy at given income levels.
C) how much consumer purchasing power is affected when prices change.
D) how the quantity demanded of a good changes in response to changes in income.
Which of the following is a normative statement?
A) The minimum wage has not kept pace with inflation.
B) The minimum wage is an important tool in fighting poverty and should be increased.
C) The minimum wage can cause higher unemployment for teens and unskilled
workers.
D) A higher minimum wage is expected to increase the price of a fast-food
cheeseburger.
The price elasticity of demand along a demand curve with a constant slope:
A) is equal to the slope.
B) is greater than the slope.
C) is less than the slope.
D) decreases in absolute value as quantity demanded rises.
(Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, their total revenue changes from _____ to _____.
A) $88; $100
B) $22; $20
C) $88; $80
D) $110; $100
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family
earning an income of $75,000 will pay an AVERAGE tax rate of:
A) 5%.
B) 7.5%.
C) 10%.
D) 20%.
If a country’s price for wood furniture in the absence of trade is lower than the price
with trade, the country will likely:
A) import wooden furniture.
B) export wooden furniture.
C) have absolute advantage in wooden furniture production.
D) have a surplus of wooden furniture.
Most electric, gas, and water companies are examples of:
A) unregulated monopolies.
B) natural monopolies.
C) restricted-input monopolies.
D) sunk-cost monopolies.
Assume that the marginal utilities for the first three units of a good consumed are 200,
150, and 125, respectively. The total utility when two units are consumed is:
A) 150.
B) 200.
C) 350.
D) 475.
If the price of chocolate-covered peanuts increases and the demand for
strawberry-flavored soft drinks decreases, this indicates that these two goods are:
A) unrelated goods.
B) complementary goods.
C) inferior goods.
D) substitute goods.
Investors will lose money on mortgage-backed securities if:
A) interest rates are too low.
B) homeowners don’t pay their mortgages.
C) homeowners pay off their mortgages early.
D) the average price of a house increases too rapidly.
Figure: A Perfectly Competitive Firm in the Short Run
(Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly
Competitive Firm in the Short Run. The firm’s short-run supply curve is the:
A) entire MC curve.
B) rising part of the MC curve beginning at point W.
C) rising part of the MC curve beginning at the point at which the firm starts earning
economic profit.
D) MC curve below point P.
Import protections are often imposed because:
A) import protections increase total surplus, even though some groups are harmed.
B) groups representing import-competing industries are more cohesive than consumers.
C) benefits to producers outweigh the costs to the consumer.
D) the loss in consumer surplus is usually quite small.
In an efficient allocation of risk:
A) all risk is eliminated.
B) those who are most willing to bear risk bear it.
C) all risk is diversified.
D) all insurance premiums are equal to the expected value of the claims.
Scenario: The Market for Good X: The market for good X can be depicted with the
following demand and supply equations: Demand: P = 50 ” 0.5Q Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on
imposing a $1 per unit tax on this good.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The
per-unit tax incidence on consumers is equal to:
A) $1.00.
B) $0.60.
C) $58.80.
D) $60.00.
Buford Bus Manufacturing installs a new assembly line. As a result, the output per
worker increases. The marginal cost of output at Buford:
A) will increase (the MC curve will shift up).
B) will decrease (the MC curve will shift down).
C) will be unchanged.
D) is at its maximum.
Maria wants to get rid of her bookshelf. She is willing to give it away, but her neighbor
offers to pay $30 for it. Maria takes a:
A) consumer surplus gain.
B) consumer surplus loss.
C) producer surplus gain.
D) producer surplus loss.
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) If the two firms in the figure Monopoly Profits
in Duopoly colluded to split production evenly and to maximize their joint profits, the
market price they set would be _____, and each firm’s economic profit would be _____.
(Assume that the market demand curve is D2.)
A) P2; given by the area of the rectangle bounded by P1P2EF = FEBG
B) P1; P1P3AF
C) P3; given by the area of the rectangle bounded by 0P3AQ1
D) P2; given by the area of the rectangle bounded by P1P2BG
Figure: The Optimal Quantity
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of
lawn mowing increased for all quantities of lawns mowed, the _____ curve in the figure
would shift to the _____ and the total profit would _____.
A) marginal benefit; right; increase
B) marginal cost; right; increase
C) marginal benefit; left; decrease
D) marginal cost; left; decrease
Figure: Revenues, Costs, and Profits for Tomato Producers III
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If the market price of a bushel of tomatoes is $8, in the short run
the farmer’s profit-maximizing output is _____ bushels.
A) 0
B) 1
C) 2
D) 3
The price elasticity of supply is computed as the percentage change in _____ divided by
the percentage change in _____.
A) quantity supplied; quantity demanded
B) quantity supplied; price
C) price; quantity supplied
D) quantity supplied; consumer income
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Suppose the duopoly industry illustrated in the
figure Monopoly Profits in Duopoly produces a perishable good. If the industry is
perfectly competitive, the market price will likely end up being _____, and the
combined economic profits of the firms will be _____.
A) P1; given by the area of the rectangle bounded by 0P1CQ4
B) P1; zero
C) P3; given by the area of the rectangle bounded by 0P3AQ1
D) P2; given by the area of the rectangle bounded by P1P2GB
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases two mixers, her average fixed cost _____ in the range of output between
100 and 400 cakes.
A) increases
B) decreases
C) remains the same
D) can’t be calculated
(Table: Total Utility of Income After College Expenses) The Smith family will choose
to purchase insurance:
A) at any premium.
B) at a premium for which the reduction in risk leaves the expected value of their
income after tuition the same.
C) up to but not exceeding the point at which the premium is that of a fair insurance
policy.
D) at a premium for which the reduction in risk is that of a fair insurance policy.
When a monopolistically competitive firm is making zero economic profits, it is
producing so that the average total cost curve is tangent to the demand curve. At this
output:
A) the firm is maximizing profits, and marginal cost must equal marginal revenue.
B) the firm is not maximizing profits, and a slight increase or decrease in output will
lead to positive profits.
C) since economic profits are zero, the condition that marginal revenue equals marginal
cost is irrelevant.
D) the condition that marginal revenue equals marginal cost continues to be relevant,
but the marginal revenue and marginal cost curves need not intersect directly below the
point of tangency between the average total cost curve and the demand curve.
Figure: Budget Lines for Oranges and Apples
(Figure: Budget Lines for Oranges and Apples) Look at the figures Budget Lines for
Oranges and Apples. For some time, Antonio has had $5 per month to spend on oranges
and apples. The price of an orange is $0.50 and the price of an apple is $0.25. Which of
the charts shows what will happen to his budget line if the price of an orange rises to
$1.00 and the price of an apple rises to $0.50?
A) A
B) B
C) C
D) D
In an attempt to reduce shooting deaths, some cities have offered money to people who
turn in illegal guns. This program is an example of the government using _____ to
influence behavior.
A) incentives
B) law
C) marginal analysis
D) the gains from trade
Figure: Demand and Supply of Gasoline
(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of
gasoline are:
A) $2.00 and 450 gallons.
B) $1.50 and 400 gallons.
C) $2.00 and 200 gallons.
D) $2.50 and 300 gallons.
A “how much” decision is best made by comparing the _____ of an action to the _____
of that action.
A) explicit costs; implicit costs
B) accounting profit; economic profit
C) marginal benefits; marginal costs
D) present value; net present value
Figure: The Market for Hamburgers
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, the government’s revenue from the tax will be:
A) $175.
B) $240.
C) $105.
D) $90.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $60, how many lawns will Alex mow?
A) 0
B) 20
C) 50
D) 40
Which of the following is NOT a factor of production at a college?
A) the faculty
B) classroom buildings
C) electricity
D) the computer labs
If two variables are positively related, on a graph they will always be represented by:
A) a line or curve that slopes downward.
B) a straight line.
C) a horizontal line.
D) a line or curve that slopes upward.
Equity means that:
A) everyone gets an efficient share of the goods and services produced.
B) everyone gets his or her fair share of the goods and services produced.
C) more of some goods and services can be produced only if the production of others is
reduced.
D) more of all goods and services may be produced.