A personal exemption refers to
A) the tax rate that applies to a particular tax bracket.
B) the tax bracket that represents basic living expenses.
C) an amount representing basic living expenses that can be subtracted from income.
D) a dispensation that allows certain qualifying individuals not to pay federal taxes.
A perfectly competitive industry achieves allocative efficiency because
A) goods and services are produced at the lowest possible cost.
B) goods and services are produced up to the point where the last unit provides a
marginal benefit to consumers equal to the marginal cost of producing it.
C) it produces where market price equals marginal production cost.
D) firms carry production surpluses.
Which of the following is the correct way to describe equilibrium in a market?
A) At equilibrium, demand equals supply.
B) At equilibrium, quantity demanded equals quantity supplied.
C) At equilibrium, market forces no longer apply.
D) At equilibrium, scarcity is eliminated.
Table 10-5
Refer to Table 10-5, which lists the values of Harry Taber’s marginal utility and
marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume
that the price of a sub sandwich is $4 and the price of a taco is $2. When Harry’s income
is $14 he buys two Italian sub sandwiches and three tacos. The last column lists the
values of the marginal utility per dollar for tacos when the price of a taco decreases to
$1. Complete this statement: As a result of the change in price
A) Harry’s purchasing power has increased. He will reduce his consumption of tacos so
he can buy one more sub. This is an example of the substitution effect of a price change.
B) Harry’s purchasing power has increased. If tacos are a normal good for Harry he will
buy fewer tacos. This is an example of the income effect of a price change.
C) Harry’s purchasing power has increased. If tacos are a normal good for Harry he will
buy more tacos. This is an example of the income effect of a price change.
D) Harry’s purchasing power has increased. Harry buys fewer tacos. This is an example
of the substitution effect of a price change
A patent
A) grants the creator of a book, film, or piece of music the exclusive right to use the
creation for 20 years.
B) grants the creator of a book, film, or piece of music the exclusive right to use the
creation during the creator’s lifetime.
C) gives a firm the exclusive right to a new product for 20 years from the date the
product is invented.
D) gives a firm the exclusive right to a new product during the product inventor’s
lifetime.
Figure 15-19
Refer to Figure 15-19 to answer the following questions.
a. What quantity will this monopoly produce and what price will it charge?
b. Suppose the monopoly is regulated. If the regulatory agency wants to achieve
economic efficiency, what price should it require the monopoly to charge?
c. To achieve economic efficiency, what quantity will the regulated monopoly produce?
d. Will the regulated monopoly make a profit if it charges the price that will achieve
economic efficiency?
e. Suppose the government decides to regulate the monopoly by imposing a price
ceiling of $35. What quantity will the monopoly produce and what price will the
monopoly charge?
f. With the price ceiling of $35, what profit will the monopoly earn?
Billie’s Billiard Barn has seen its business slow down ever since Patti’s Ping Pong
Parlour opened up across the street. Since the opening of Patti’s Ping Pong Palace, the
opportunity cost of shooting pool at Billie’s Billiard Barn has
A) decreased.
B) increased.
C) fallen to zero.
D) not changed.
In 1976 New Jersey voters passed a referendum to legalize gambling. Several gambling
casinos opened in Atlantic City beginning in 1978 and were initially very profitable,
attracting people from the Mid-Atlantic and Northeastern states. Entrepreneurs in these
states were unable to compete with the Atlantic City casinos because casino gambling
was illegal in their states. For these entrepreneurs in the other states, the barrier to entry
they were facing was
A) due to economies of scale.
B) due to ownership of a key resource.
C) government imposed.
D) self imposed.
Suppose you have worked at a local sandwich shop for six months and now you plan to
ask your manager for a raise. How can you convince your manager that you are worth
more money than you are currently being paid?
A) by threatening to quit if he refuses to give you a raise
B) by demonstrating to your manager the marginal revenue product your employment
contributes to the sandwich shop
C) by explaining to him how difficult it is for you to save enough money to go to
college
D) by convincing him that you are a dedicated worker and ready to take on more
responsibilities at the shop
Some economists believe that the economy benefits from firms having market power.
Which of the following is an argument that has been made to support this position?
A) Large firms are better able than small firms to spend funds on research and
development required to develop new products.
B) Competition is very rare in the U.S. economy and few new products are produced by
smaller, competitive firms.
C) Research has shown that the deadweight loss from monopolies is a small percentage
of the value of production in the United States.
D) Large firms can afford to lobby the U.S. government in order to impose restrictions
on imports and reduce the outsourcing of jobs to other countries.
Figure 17-1
Figure 17-1 shows the marginal revenue product for Dale’s Hand-Sewn Doilies, a
producer of linen doilies.
Refer to Figure 17-1. Suppose the market price of doilies rises to $3. What happens to
the curve given in the diagram?
A) Nothing, because labor’s productivity has not changed.
B) There will be a movement along the curve.
C) The curve shifts to the right.
D) We cannot answer the question without knowing if Dale would want to hire more
workers.
If 11 workers can produce a total of 54 units of a product and a 12th worker has a
marginal product of 6 units, then the average product of 12 workers is
A) 60 units.
B) 54 units.
C) 48 units.
D) 5 units.
All of the following are part of an economic model except
A) assumptions.
B) hypotheses.
C) data.
D) opinions.
If tolls on a toll road can be raised significantly before commuters will consider using a
free alternative, then an increase in tolls will result in
A) a decrease in total revenue.
B) a decrease in non-toll road usage.
C) an increase in total revenue.
D) an increase in toll road usage.
The ability of a firm to charge a price greater than marginal cost is called
A) monopoly power.
B) price-making power.
C) cost-plus pricing.
D) market power.
Japan has developed a comparative advantage in designing and producing automobiles.
The source of its comparative advantage in these products is
A) abundant supplies of natural resources.
B) a favorable climate.
C) a strong central government.
D) technology.
Which of the following statements is true?
A) All individuals in both countries are made better off as a result of international trade.
B) Within each country, some individuals are made better off as a result of international
trade, but one of the countries will be worse off overall.
C) Although some individuals are made better off as a result of international trade, both
countries may be made worse off overall.
D) Each country as a whole is made better off as a result of international trade, but
individuals within each country may be made worse off.
Figure 3-2
Refer to Figure 3-2. A decrease in the price of the product would be represented by a
movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
If the price of gasoline decreases, what will be the impact in the market for public
transportation?
A) The demand curve for public transportation shifts to the right.
B) The quantity of public transportation demanded increases.
C) The demand curve for public transportation shifts to the left.
D) The quantity of public transportation demanded decreases.
The demand curve for labor is also
A) the demand curve for the output produced with labor since the demand for labor is a
derived demand.
B) the marginal product of labor curve.
C) the marginal revenue product of labor curve.
D) the supply curve for the output labor is used to produce.
Which of the following statements is true?
A) The supply of oil is very elastic over short time periods but becomes perfectly
inelastic over time. A given shift in supply results in a greater increase in the price of oil
when the supply of oil is perfectly inelastic.
B) The supply of oil is very inelastic over short time periods but becomes more elastic
over time. A given shift in supply results in a smaller increase in the price of oil when
the supply is more elastic.
C) The supply of oil is perfectly inelastic; therefore, as the demand for oil increases
over time the price of oil increases significantly.
D) Over short periods of time increases in the demand for oil are greater than increases
in the supply of oil. Over the long run increases in the demand and the supply of oil are
about equal. As a result, the price of oil increases greatly in the short run but is stable in
the long run.
Suppose the following two events occur in the domestic market for radiologists:
a. Some hospitals are outsourcing some radiology services such as reading x-rays.
b. Some medical schools have closed down their radiology departments as fewer
students enroll in this field.
What is likely to happen to the equilibrium wage and quantity of radiologists following
these two events?
A) The equilibrium wage and the equilibrium quantity of radiologists rise.
B) The equilibrium wage and the equilibrium quantity of radiologists fall.
C) The equilibrium quantity falls and the effect on the equilibrium wage of radiologists
is indeterminate.
D) The equilibrium wage falls and the effect on equilibrium quantity of radiologists is
indeterminate.
Table 14-4
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale
town of Montecito. Each firm must decide on whether to increase its advertising budget
to compete for customers. If one firm increases its advertising budget but the other does
not, then the firm with the higher advertising budget will increase its profit. Table 14-4
shows the payoff matrix for this advertising game.
Refer to Table 14-4. Does Baine have a dominant strategy and if so, what is it?
A) Yes, Baine should increase its advertising budget.
B) Yes, Baine should keep its advertising budget as is.
C) There are two dominant strategies: if Alistair increases its advertising budget, then
Baine’s best bet is to keep its budget the same but if Alistair does not increase its budget
then Baine should raise its advertising budget.
D) No, there is no dominant strategy.
When a monopolistically competitive firm cuts its price to increase its sales, it
experiences a loss in revenue due to the
A) substitution effect.
B) income effect.
C) price effect.
D) output effect.
What is the United States government’s formal definition of the poverty line?
A) It is a level of annual income equal to total income in society divided by the
population, adjusted for a family of four.
B) It is a level of annual income equal to the amount of money necessary to purchase
the minimal quantity of food required for adequate nutrition.
C) It is the annual income level below which a household is exempt from taxes.
D) It is a level of annual income equal to three times the amount of money necessary to
purchase the minimal quantity of food required for adequate nutrition.
In the long run, firms in both monopolistically competitive markets and perfectly
competitive markets earn zero economic profits, but unlike perfectly competitive firms
in the long run, monopolistically competitive firms
A) charge a price that is greater than average revenue.
B) charge a price that is equal to marginal cost.
C) do not produce at minimum average total cost.
D) charge a price that is equal to average total cost.
For consumers who opt to pay a $10 monthly fee to have unlimited texting on their cell
phones, but choose not to pay a $5 monthly fee to have unlimited call minutes, the
unlimited texting option has a ________ than the unlimited minutes option.
A) higher price elasticity of demand
B) higher cross-price elasticity of demand
C) lower price elasticity of demand
D) lower cross-price elasticity of demand
Once a product becomes established, network externalities may create ________ costs
that make consumers reluctant to buy a new product with better technology.
A) external
B) implicit
C) switching
D) marginal
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a
combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and
80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?
A) 5 silk leaves
B) 10 silk leaves
C) 25 silk leaves
D) 55 silk leaves
According to the Department of Justice merger guidelines, a proposed merger between
two firms may be challenged if the post-merger Herfindahl-Hirschman Index
A) lies between 1,000 and 1,800 and the merger raises the Index by 50 points.
B) lies between 1,000 and 1,800 and the merger raises the Index by more than 100
points.
C) lies above 1,800 and the merger raises the Index by less than 50 points.
D) lies below 1,000 and the merger raises the Index by 100 points.
When the price of summer tank tops falls and you buy more of them because they are
relatively less expensive, this is called
A) the substitution effect.
B) the income effect.
C) the deadweight loss effect.
D) the elasticity effect.
Table 3-1
Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of
two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity
demanded in the market would be
A) 51 lbs.
B) 63 lbs.
C) 76 lbs.
D) 146 lbs.
Assume that the hourly price for the services of tarot card readers has risen and sales of
these services have also risen. One can conclude that
A) the law of demand has been violated.
B) the number of tarot card readers has increased.
C) the demand for tarot card readers has increased.
D) tarot card readers are deliberately charging high prices because they provide services
for superstitious clients.