Monopolistic competition is best described as
a. many firms with some control over price, and some product differentiation
b. many firms with no control over price, producing identical products
c. a few firms with some control over price, producing highly differentiated products
d. a few firms with no control over price, producing similar products
e. a single firm producing all of the output for the industry, with strong control over
price
Two workers are employed in the same job by the same firm; however, they are paid
different wage rates. This could be explained by differences in
a. the income effect
b. the price of the firm’s output
c. their marginal products due to differences in ability
d. working conditions
e. risk
Attending college can be viewed as a form of
a. investment in which costs are borne today and benefits are received in the future
b. investment in which benefits are received today and costs are borne in the future
c. consumption, because learning is an enjoyable activity
d. leisure, because learning is an enjoyable activity
e. saving for the future
A permanent decrease in demand for convenience store services is likely to cause which
of the following in the long run?
a. an economic loss for each firm
b. a higher price for each firm’s output
c. fewer firms in the industry
d. more firms in the industry
e. economic profit for each firm
Marginal revenue product is defined as the
a. change in total output that results from the employment of an additional unit of a
resource
b. change in total product that results from the employment of an additional unit of a
resource
c. change in total revenue that results from the employment of an additional unit of a
resource
d. change in resource employment that results from a change in total output
e. change in marginal revenue that results from a change in the employment of an
additional unit of a resource
Exhibit 5-25
Exhibit 5-25 shows a hypothetical demand curve for soybeans. The vertical axis
measures the average price per bushel in dollars. The horizontal axis measures billions
of bushels per year. If perfect weather boosts the harvest from 3.5 billion bushels to 4.0
billion bushels (a 13 percent increase), what must happen to average price in order for
the increased production to be sold?
a. The average price must increase by $1 per bushel, a 22 percent increase.
b. The average price will remain at $5 per bushel.
c. The average price must fall by $0.58 per bushel, a 13 percent decrease.
d. The average price must fall by $1 per bushel, a 22 percent decrease.
e. It is not possible to answer without knowing exactly how much supply decreases.
A German who exchanges euros for dollars in a U.S. airport is
a. contributing to U.S. exports
b. lending dollars to Germans
c. participating in the foreign exchange market
d. engaging in speculative activities
e. engaging in illegal activities
Exhibit 16-3
Which area in Exhibit 16-3 reflects the loss of consumer surplus that results from the
price floor?
a. area bcde
b. area ihgl
c. area dfe
d. area agl0
e. area abeg
Division of labor increases productivity because
a. tasks can be assigned according to individual tastes and abilities
b. workers who repeatedly perform the same tasks become bored
c. each worker must learn each of the numerous tasks in the total production process
d. specialization of labor allows for the introduction of cheaper, less sophisticated
production techniques
e. managers can force workers to produce goods that are valued more highly than the
costs of producing them.
In the long run in perfect competition, no firm can earn a normal profit.
a. True
b. False
Which of the following is true?
a. both b and c
b. the U.S. capital account records international transactions involving purchases of
investments
c. the U.S. capital account records international transactions involving sales of
investments
d. U.S. capital refers to the export of real capital only
e. U.S. capital outflows result when foreigners purchase U.S. assets
Household income is spent on all of the following except one. Which is the exception?
a. services
b. tax payments
c. durable goods
d. nondurable goods
e. dividends
The demand for medical care
a. decreases as income increases, indicating that medical care is an inferior good
b. is completely insensitive to price; that is, demand is perfectly inelastic
c. is perfectly elastic
d. is sensitive to the time component of cost
e. varies directly with the price of that care
According to William Shepherd’s examination of competitive trends in the U.S.
economy, a dominant firm
a. is a pure monopoly
b. is a firm with over half the market share and no close rival
c. is one of four firms that together supply more than 60 percent of the market
d. is a single firm that controls the entire market and can block entry
e. is one of four firms that work together to block entry into the market
Average revenue is
a. total revenue minus total cost
b. total revenue divided by quantity of output
c. total revenue divided by quantity of input
d. the change in total revenue divided by the change in output
e. the change in total revenue divided by the change in the quantity of an input used
The research of William Shepherd suggests that since World War II, the three main
reasons for increased competition in U.S. industries are international trade,
deregulation, and antitrust activity.
a. True
b. False
Which of the following groups does not support the special interests of the elderly?
a. the elderly themselves
b. the relatives of the elderly
c. the housing industry
d. doctors and nursing home operators
e. those under 65 who are concerned about their future benefits
When the free market produces less than the socially optimal quantity of a good,
a. negative externalities must be present
b. marginal social cost must exceed marginal private cost
c. marginal private benefit must exceed marginal social benefit
d. the government should tax production of the good
e. there has been a market failure
An inferior good is one for which demand increases as
a. price decreases
b. price increases
c. income increases
d. income decreases
e. the price of a related good decreases
Along a backward-bending labor supply curve, the
a. income effect always dominates the substitution effect
b. substitution effect always dominates the income effect
c. substitution effect is always equal to the income effect
d. substitution effect dominates the income effect at high wage rates
e. substitution effect dominates the income effect at low wage rates
If a union negotiates a wage above the market equilibrium, each firm hiring union
members faces
a. a perfectly inelastic supply curve for labor
b. a perfectly elastic supply curve for labor
c. a perfectly inelastic demand curve for labor
d. a perfectly elastic demand curve for labor
e. perfectly inelastic supply and demand curves for labor
A curve representing combinations of two goods that yield equal total utility is a(n)
a. production possibilities frontier
b. demand curve
c. supply curve
d. marginal utility curve
e. indifference curve
According to the special interest theory, the licensing of beauticians would be
a. desired by consumers in order to promote the public interest
b. desired by beauticians in order to promote the public interest
c. discouraged by all beauty salons, large or small
d. desired by some beauticians in order to restrict entry into their profession
e. done strictly at the initiative of the government
Exhibit 13-3
Exhibit 13-3 gives data on the number of tools a certain firm buys to use in its
production process. Assume that the tools are expected to last indefinitely, that
operating expenses are negligible, and that the price of the firm’s output is expected to
remain constant in the future. At what interest rate would the firm in Exhibit 13-3
choose to buy 3 machines?
a. 5%
b. 8%
c. 12%
d. 20%
e. 24%
If a perfectly competitive firm is producing at a quantity at which MC < AVC, it cannot
be maximizing profit in the short run.
a. True
b. False
Some people have argued that government should provide only those goods that we
would truly define as public goods. If so, which of the following should government
produce?
a. National Defense
b. day-care centers for children of working mothers
c. mail delivery
d. unemployment benefits
e. subsidies for agricultural products
The marginal social benefit of air quality
a. declines as air quality increases
b. rises as air quality increases
c. remains constant as air quality increases
d. first falls then rises as air quality increases
e. is always negative
Exhibit 1-4
According to the curve in Exhibit 1-4,
a. if P = $8, then Q = 8
b. if P = $10, then Q = 10
c. Q increases as P increases
d. Q decreases as P decreases
e. there is a positive relation between Q and P
A consumer maximizes utility by allocating time so that the expected marginal utilities
of the last unit of time spent in each activity are identical.
a. True
b. False
At a low wage rate,
a. there is no substitution effect
b. there is no income effect
c. the substitution effect usually outweighs the income effect
d. the income effect usually outweighs the substitution effect
e. the disutility of market work is usually high
If demand decreases and supply increases, price will
a. always increase
b. always decrease
c. increase only if supply increases more than demand decreases
d. increase only if supply increases less than demand decreases
e. decrease only if supply increases more than demand decreases