In discussions of barriers to entry, what is meant by the term “virtuous cycle”?
A) A virtuous cycle refers to successful research and development that leads to
information that is used to develop other new products.
B) A virtuous cycle refers to a firm using the profits from a monopoly in one market to
establish a monopoly in another market.
C) A virtuous cycle refers to the situation where the pursuit of self-interest in
establishing an entry barrier leads to an increase in social welfare (the “invisible hand”).
D) A virtuous cycle refers to a situation where if a firm can attract enough customers
initially, it can attract additional customers because its product’s value has been
increased by other customers using it, which attracts even more customers.
Figure 6-3
Refer to Figure 6-3. Using the midpoint formula, calculate the absolute value of the
price elasticity of demand between e and f.
A) 32
B) 4
C) 5
D) 125
What happens in the secondary market?
A) secondary inputs like electricity are sold
B) a corporate financial manager will raise funds for expansion of the firm
C) newly issued claims are sold by the borrowing firm to the initial buyer
D) already issued claims are sold from one investor to another
If a firm shuts down in the short run it will
A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.
Economies of scale exist as a firm increases its size in the long run because of all of the
following except
A) the firm can afford more sophisticated technology in production.
B) labor and management can specialize even further in their tasks.
C) as a larger input buyer, the firm can purchase inputs at a lower per unit cost.
D) as a firm expands its production, its profit margin per-unit of output increases.
If Canada imports fishing poles from Mexico and Mexico imports bacon from Canada,
which of the following would explain this pattern of trade?
A) Mexico has a lower opportunity cost of producing bacon than Canada and Mexico
has a comparative advantage in producing fishing poles.
B) The opportunity cost of producing fishing poles in Canada is higher than the
opportunity cost of producing bacon in Mexico.
C) Mexico must have an absolute advantage in producing fishing poles and Canada
must have an absolute advantage in bacon.
D) Mexico has a higher opportunity cost of producing fishing poles than Canada, and
Canada has a higher opportunity cost of producing bacon.
Figure 4-12
Refer to Figure 4-12. The figure above represents demand and supply in the market for
gasoline. Use the diagram to answer the following questions.
a. How much is the government tax on each gallon of gasoline?
b. What portion of the unit tax is paid by consumers?
c. What portion of the unit tax is paid by producers?
d. What is the quantity sold after the imposition of the tax?
e. What is the after-tax revenue per gallon received by producers?
f. What is the total tax revenue collected by the government?
g. What is the value of the excess burden of the tax?
h. Is this gasoline tax efficient?
What is the endowment effect?
A) the phenomenon that economic agents are endowed with different qualities and
abilities so that trade among individuals increase efficiency
B) the tendency for economic agents with abundant resources to consume a
proportionately greater quantity of goods and services
C) the tendency of people to be unwilling to sell something they already own even if
they are offered a price that is greater than the price they would be willing to pay to buy
the good if they didn’t already own it
D) the tendency of firms to use celebrities endowed with good looks to promote their
products
Which of the following characteristics is common to monopolistic competition and
perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward-sloping demand curve.
D) Firms take market prices as given.
Compared to a monopolistic competitor, a monopolist faces
A) a more elastic demand curve.
B) a more inelastic demand curve.
C) a more elastic demand curve at higher prices and a more inelastic demand curve at
lower prices.
D) a demand curve that has a price elasticity coefficient of zero.
All but one of the following have been suggested by some economists as possible
consequences of path dependency and switching costs. Which of the following is not a
possible consequence of path dependency and switching costs?
A) Consumers may get locked into using products with inferior technology.
B) market failure
C) diseconomies of scale
D) Government intervention may be necessary in affected markets in order to improve
economic efficiency.
If a monopolistically competitive firm is producing 50 units of output where marginal
cost equals marginal revenue, total cost is $1,674 and total revenue is $2,000, its
average profit is
A) $326.
B) $40.
C) $6.52.
D) impossible to determine without additional information.
Scenario 17-1
In academia, professors in some disciplines receive higher salaries than others. For
example, professors teaching in business schools receive higher salaries than professors
in the English department. Suppose at Unity College, assistant professors in the
business school earn $80,000 while assistant professors in the English department earn
$50,000. Now suppose the government passes comparable worth legislation that
requires academic institutions to pay all faculty the same salaries.
Refer to Scenario 17-1. Following the passage of comparable worth legislation, Unity
College responds by placing salaries for all assistant professors at $80,000. Which of
the following is the result of the legislation?
A) The supply of English professors increases; the market for business professors is not
affected.
B) The demand for English professors decreases; the market for business professors is
not affected.
C) There will be a surplus in the market for English professors and a shortage in the
market for business professors.
D) There will be a surplus in the market for English professors and the market for
business professors will not be affected.
Which of the following describes a situation in which a good or service is produced at
the lowest possible cost?
A) productive efficiency
B) allocative efficiency
C) marginal efficiency
D) profit maximization
Figure 6-8
Refer to Figure 6-8. Identify the two goods which are complements.
A) Good X and Good Y
B) Good Y and Good Z
C) Good X and Good Z
D) It is not possible to distinguish any relationship among the goods.
Auctions in recent years have resulted in higher prices paid for letters written by John
Wilkes Booth than those written by Abraham Lincoln. What is a reason for this
difference in price?
A) There is a surplus of letters written by Booth and a shortage of letters written by
Lincoln.
B) Many people are more fascinated by villains and anti-heroes than by heroic figures.
C) There are more letters available for collectors to buy that were written by Lincoln
than there are letters that were written by Booth.
D) Booth was a well-known actor; the demand for his letters rose as wealthy actors
attempted to buy them.
Which of the following is not an option for a perfectly competitive firm that suffers
short-run losses?
A) shutting down
B) reducing production
C) reducing the use of variable factors
D) raising price
Disagreements about whether the U.S. government should regulate international trade
A) began during the Great Depression.
B) began after World War I when government officials no longer believed in
isolationism.
C) date back to the beginning of the country.
D) did not occur until the end of the Mexican War in 1848.
If an increase in income leads to in an increase in the demand for peanut butter, then
peanut butter is
A) a neutral good.
B) a normal good.
C) a necessity.
D) a complement.
The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8
pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair
of jeans is
A) $20.
B) $90.
C) $100.
D) $700.
Figure 11-11
Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture
frames. The graph also includes short-run average cost curves for three firm sizes:
ATCa, ATCb and ATCc.
Refer to Figure 11-11. Constant returns to scale
A) occur for output rates greater than 5,000 picture frames.
B) occur between 5,000 and 20,000 picture frames per month.
C) occur between 10,000 and 20,000 pictures frames per month.
D) will shift the long-run average cost curve downward.
Table 16-3
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the
demand for this service. Assume that each person surveyed demands only one hour of
pet sitting services per period. Table 16-3 above shows a portion of her survey results.
Refer to Table 16-3. If Julie charges $10 per hour, how many hours of pet sitting
services will be purchased and by whom?
A) 2 hours (1 hour by Cara and 1 hour by Dawn)
B) 1 hour by Cara only
C) 1 hour by Dawn only
D) 3 hours (1 hour each by Arun, Bernice, and Cara)
Which of the following is an example of a common resource?
A) catfish in a private pond in Mississippi
B) impounded dogs in a dog pound
C) public health care services in the United States
D) sea otters in the coastal waters of the Pacific Ocean
Assume that the demand curve for sunblock is linear and downward sloping. Which of
the following statements about the slope of the demand curve for sunblock and the price
elasticity of demand for sunblock are true?
A) The slope and the price elasticity of demand are constant at all points along the
demand curve for sunblock.
B) The slope is constant, but the price elasticity of demand is not constant at all points
along the demand curve for sunblock.
C) The slope is not constant, but the price elasticity of demand is constant at all points
along the demand curve for sunblock.
D) The slope of the demand curve for sunblock is constant and equal to zero; demand is
perfectly inelastic.
Suppose that some teachers have decided that economic and financial uncertainty have
made the prospect of retiring more risky, and therefore carry a higher cost than not
retiring. By using all available information as they act to achieve their goals, these
teachers are exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
Of the following sources of tax revenue for state and local governments, which was the
smallest in 2014?
A) sales taxes.
B) the corporate income tax.
C) the property tax.
D) the individual income tax.
Table 10-2
Table 10-2 above shows Keira’s utility from soup and sandwiches. The price of soup is
$2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two
goods.
Refer to Table 10-2. What is Keira’s marginal utility per dollar spent on the third cup of
soup?
A) 72 units of utility
B) 36 units of utility
C) 12 units of utility
D) 6 units of utility
The price of a financial asset should be equal to
A) the face value of the asset.
B) the present value of the sum of the coupon payments and the interest rate.
C) the face value of the asset divided by the interest rate.
D) the present value of payments to be received from owning that asset.
If the quantity demanded for a good rises as income rises then the income elasticity of
demand for this good is ________ than 0, and the good is ________ good.
A) greater; an inferior
B) less; a normal
C) less; an inferior
D) greater; a normal
The price elasticity of supply is usually a positive number because
A) quantity supplied increases in response to income increases.
B) quantity supplied increases in response to price increases.
C) the quantity demanded usually rises when price falls and therefore suppliers would
want to capitalize on this increase in demand.
D) price rises when supply increases.
Consider the following characteristics:
a. low transactions costs
b. small levels of pollution
c. high levels of pollution
d. clear assignment of property rights
Which of the above are assumptions behind the Coase Theorem?
A) a, b, and d
B) a, c, and d
C) a and d
D) a only
Customer discrimination occurs when
A) a firm pays workers different wages based on irrelevant factors.
B) customers refuse to buy products produced by a racially diverse workforce.
C) customers refuse to buy products they believe to be of poor quality.
D) workers refuse to serve customers of a different race.
Raising funds through financial intermediaries is called
A) direct finance.
B) corporate finance.
C) indirect finance.
D) dividend reinvestment.