Accountants use only _____ costs in their computations.
A) opportunity
B) implicit
C) explicit
D) variable
Moral hazard:
A) occurs when incentives are distorted because an individual knows more about his or
her own actions than other people do.
B) is a term used to describe the bonuses paid for particularly hazardous jobs (such as
firefighting).
C) is a term used synonymously with value judgment.
D) refers to the questionable morality of price gouging in hazardous times (e.g., in the
presence of famines or floods).
Total cost divided by the quantity of output produced is:
A) always increasing.
B) always decreasing.
C) average total cost.
D) marginal cost.
A busy professor can’t decide whether to stay in his office to grade papers for another
hour or to go home and go to bed. This is an example of:
A) equity versus efficiency.
B) how one person’s spending is another person’s income.
C) economic incentives.
D) marginal analysis.
Efficiency exists when there is no way to make someone better off without making
someone else worse off.
For which of the following decisions would marginal analysis be MOST relevant?
A) Should George accept a job with Delta Airlines or with Greenpeace?
B) Should Mary go to graduate school after graduating from college?
C) Should Vevik emigrate to the United States or stay in India?
D) Should Hong work an additional hour or take a short nap?
(Table: Workers and Art Output) Look at the table Workers and Art Output. Suppose
you achieve your dream of opening an art studio specializing in selling mud statues.
You pay $10 in fixed costs for equipment and $9 per day to each of your workers who
make the mud statues. The industry is perfectly competitive, with a current market price
of $1. How many statues should you produce?
A) 25
B) 35
C) 43
D) 48
In the market for tacos, each of the following shifts the supply curve to the left
EXCEPT:
A) an increase in the price of beef.
B) an increase in the wages of taco shop workers.
C) fewer taco shops.
D) a decrease in the price of tacos.
Figure and Table: The Budget Line
(Figure and Table: The Budget Line) Look at the figure and table The Budget Line.
_____ in the price of clams would rotate the budget line along the _____ axis _____ the
origin.
A) An increase; horizontal; away from
B) A decrease; horizontal; away from
C) An increase; vertical; toward
D) A decrease; vertical; away from
(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 $180, how many pairs will be purchased?
A) none
B) one
C) two
D) three
If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the
price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A) inferior goods.
B) luxury goods.
C) substitute goods.
D) complementary goods.
Figure: A Budget Constraint for CDs and Movies
(Figure: A Budget Constraint for CDs and Movies) Look at the figure A Budget
Constraint for CDs and Movies. Chantal likes to spend her weekly income on new CDs
and tickets to see movies. The price of a CD is $12 and the movie ticket price is $10.
The graph shows Chantal’s budget line. What is her weekly income?
A) $240
B) $100
C) $120
D) $22
In constructing a model, economists:
A) might use a computer simulation.
B) avoid making any assumptions.
C) assume that all relevant factors are constantly changing.
D) are prohibited from using mathematics.
Figure: Harold’s Indifference Curves The figure shows three of Harold’s indifference
curves for bread and cheese.
(Figure: Harold’s Indifference Curves) Look at the figure Harold’s Indifference Curves.
If the price of bread is $0.50 per loaf, the price of cheese is $1 per pound, and Harold
has $7 to spend on bread and cheese, Harold’s optimal consumption bundle is _____
loaves of bread and _____ pounds of cheese.
A) 6; 4
B) 4; 3
C) 3; 2
D) 2; 8
If resources are scarce, it means that they:
A) are insufficient to provide enough goods and services to satisfy all human material
wants and needs.
B) have no opportunity cost.
C) are probably not valued by consumers.
D) have an unlimited supply.
Assume that the United States imposes an import quota on Columbian coffee. Relative
to the equilibrium world price that would prevail in the absence of import quotas, it is
likely that the equilibrium price of coffee in the United States will _____ and the
equilibrium price of coffee in Columbia will _____.
A) decrease; remain the same
B) remain the same; increase
C) increase; increase
D) increase; decrease
Gasoline, a derivative of oil, is a large part of transportation costs for many producers.
If the price of oil increases at the same time that incomes fall for many consumers, one
would expect the equilibrium price of many normal goods to _____, while their
equilibrium quantities would _____.
A) fall; rise
B) fall, rise, or stay the same; decrease
C) decrease; fall, rise, or stay the same
D) fall; fall
Figure: Producer Surplus III
(Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the
good decreases from $2 to $1, producer surplus will decrease by:
A) $5.
B) $15.
C) $25.
D) $35.
Which situation would most likely cause a DECREASE in consumer surplus in the toy
market?
A) The cost of shipping increases because of higher oil prices.
B) Consumer income increases.
C) There is an unexpected baby boom.
D) A new assembly line design increases worker productivity.
In the short run, if AVC < P < ATC, a perfectly competitive firm:
A) produces output and earns an economic profit.
B) produces output and incurs an economic loss.
C) does not produce output and earns an economic profit.
D) does not produce output and earns zero economic profit.
(Table: Market for Pizza) If income changes from $1,000 to $1,400 per month, by the
midpoint method, the income elasticity of demand at a price of $10 per pizza is:
A) 0.33
B) 0.57
C) 0.95
D) 1.2
Suppose the market demand curve for TV remotes is given by the equation Qd = 100 ”
2P, where P is the price and Qd is the number of TV remotes demanded. If the market
price of TV remotes is $10, then the quantity demanded equals _____ and the value of
consumer surplus is _____.
A) 20; $100
B) 80; $200
C) 80; $1,600
D) 20; $1,600
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the
overall demand for cheeseburgers is:
A) price elastic.
B) price inelastic.
C) price unit-elastic.
D) perfectly price inelastic.
General Snacks is a typical firm in a market characterized by the model of monopolistic
competition. Initially, the market is initially in long-run equilibrium, and then there is an
increase in the market demand for snacks. We expect that:
A) in the long run, new firms will enter the market.
B) there will be a short-run increase in the number of firms, but in the long run the
number of firms will return to the original level.
C) firms will leave the market in the long run.
D) firms will shut down, but they will not leave the industry in the long run.
Because tourist demand for airline flights is relatively _____, small _____ in ticket
price will result in relatively _____ in additional tourists.
A) inelastic; reductions; small increases
B) elastic; reductions; large increases
C) inelastic; increases; small decreases
D) elastic; increases; small increases
Figure: Firms in Monopolistic Competition
(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in
Monopolistic Competition, economic profit per unit is:
A) KL.
B) LO.
C) MN.
D) NO.
To maximize profit, a monopolistically competitive firm should produce the level of
output at which:
A) marginal revenue equals marginal cost.
B) price equals marginal cost.
C) price equals total cost.
D) marginal revenue equals price.
A natural monopolist that is price-regulated at the marginal cost output level will:
A) produce the optimal level of output and earn a normal profit.
B) eventually incur losses if MC is less than ATC.
C) be producing at the same output and price that an unregulated natural monopolist
would choose.
D) produce the optimal level of output and earn an economic profit greater than zero.