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Sponsors invest $250,000 in a new deli on the promise that they will earn a return of
10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's
fixed costs include the return to investors and $79,000 in other fixed costs. Variable
costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per
week). The deli is open 52 weeks per year.
The deli's annual fixed costs sum to ________.
A) $25,000
B) $79,000
C) $104,000
D) $208,000
Tacit collusion occurs when price- and quantity-fixing agreements among producers
A) are implicit.
B) are explicit.
C) are nonexistent.
D) are legal.
Which of the following is a macroeconomics question?
A) Should we have a constitutional amendment to balance the federal budget?
B) Why does a firm decide to enter a particular market?
C) Should the government prevent the merger of two large firms?
D) Should the government put a tax on alcohol in an attempt to reduce highway
fatalities?
Referring to the Economics in Practice on page 320: If restaurants are required to
include calorie and fat-content labels on menus, the demand curve for low-fat,
low-calorie menu items will most likely shift to the ________, resulting in ________ in
the equilibrium price of these items.
A) right; an increase
B) right; a decrease
C) left; an increase
D) left; a decrease
Figure 7.2
Refer to Figure 7.2. The average product of the first worker is ________ lawns mowed.
A) 3
B) 4
C) 5
D) 11
Figure 13
The market is initially in equilibrium at Point B. If supply shifts from S2 to S1, the new
equilibrium price will be ________ and the new equilibrium quantity will be ________.
A) $5.00; 4
B) $5.00; 10
C) $7.00; 6
D) $7.00; 7
A voluntary exchange between Samantha (the purchaser) and Adriana (the seller)
occurs because
A) Samantha stands to gain and Adriana stands to lose.
B) Samantha stands to lose and Adriana stands to gain.
C) they both gain from the transaction.
D) they had no choice.
When trade is ________, patterns of trade and trade flows result from the independent
decisions of thousands of importers and exporters, as well as millions of private
households and firms.
A) restricted
B) barred
C) free
D) embargoed
Table 16.2
Refer to Table 16.2. This glass-recycling firm is perfectly competitive and is forced to
take damage costs into account. If the market price of the product is $50, the firm will
produce
A) 0 tons of glass.
B) 2 tons of glass.
C) 3 tons of glass.
D) 4 tons of glass.
An entrepreneur is a person who does all of the following EXCEPT
A) assumes the risk of a firm.
B) organizes and manages a firm.
C) turns a new idea or product into a business.
D) always makes a profit.
________ is financed through general revenues.
A) Medicare
B) The Food Stamp program
C) The Social Security system
D) Unemployment compensation
You own a condominium in Orlando, Florida. During the recent downturn in housing
values in the area your condo's value declined by $75,000. Your economic income
________ and your taxable income ________.
A) was unchanged; fell
B) fell; was unchanged
C) fell; fell
D) was unchanged; was unchanged
The demand schedule of a monopolistically competitive firm when compared to the
demand schedule of a perfectly competitive firm is
A) more price elastic.
B) less price elastic.
C) perfectly price elastic.
D) perfectly price inelastic.
Figure 6.3
Refer to Figure 6.3. Molly's budget constraint is AC. It would swivel to AD if the price
of
A) DVDs increased.
B) DVDs decreased.
C) CDs increased.
D) CDs decreased.
Relating to the Economics in Practice on page 386: The Oregon study found that those
persons enrolled in the Medicare expansion program had
A) higher health care utilization.
B) more medical debt.
C) declines in the use of emergency rooms.
D) less use of preventive care.
A monopolistically competitive firm
A) can sell an infinite amount of output at the market-determined price.
B) should lower its price if it intends to reduce output.
C) should raise its price if it intends to reduce output.
D) sells a fixed amount of output regardless of price.
Which of the following help to correct for the market failure of imperfect information?
A) professional licensing
B) homeowner warranties
C) nutrition labeling
D) All of the above are correct.
If the supply of labor decreases, which of the following events will occur?
A) The wage rate will fall and firms will increase employment up until the point where
MRP equals the new wage rate.
B) The wage rate will fall and firms will decrease employment to the point where MRP
equals the new wage rate.
C) The wage rate will increase and firms will decrease employment to the point where
MRP equals the new wage rate.
D) The wage rate will increase and firms will increase employment up until the point
where MRP equals the new wage rate.
Figure 6.5
Refer to Figure 6.5. Molly's budget constraint is EF. If her income decreases while the
price of the goods are unchanged, her new budget constraint could be
A) AD.
B) BD.
C) CD.
D) not shown on this graph.
In the short run where total variable cost is ________ at a(n) ________ rate, marginal
cost is positive and increasing.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Figure 6.5
Refer to Figure 6.5. Molly's budget constraint is CD. Molly's income is $75, the price of
a cassette tape is $3 and the price of a CD is $5. At point D, she is buying ________
cassette tapes and ________ CDs.
A) 0; 15
B) 25; 0
C) 25; 15
D) 50; 30
If some gain and some lose as the result of a change, and it can be demonstrated that the
value of the gains exceeds the value of the losses, then the change is said to be
A) potentially efficient.
B) inefficient.
C) unequivocally Pareto optimal.
D) technically efficient.
Rented DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma
TVs are complements. Plasma TVs and movies shown in theaters are normal goods.
People watch rented DVDs more often in the winter than in the summer.
You observe that the rental price for DVDs is higher in the winter than in the summer.
This would be explained by the fact that
A) demand for rented DVDs is higher in the winter than in the summer.
B) the quantity demanded of rented DVDs is higher in the winter than in the summer.
C) there are more DVDs released into the rental market in the winter than in the
summer.
D) consumer income tends to fall in the winter and increase in the summer.
If the government levies a tax on a manufacturing company that created an external
social cost, the tax should equal the marginal ________ to ensure an efficient
correction.
A) private cost
B) social cost
C) benefit
D) damage cost
Table 20.3
Refer to Table 20.3. If the exchange rate is $1 = 1 euro, then
A) the United States will import both peas and carrots.
B) France will import both peas and carrots.
C) the United States will import carrots and France will import peas.
D) France will import carrots.
Because marginal cost is always ________ in the short run, total variable cost always
________ when output increases.
A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases
Table 11.1
Refer to Table 11.1. If the interest rate is 25%, Nashbar Bicycle's total investment
would be
A) $0.
B) $100,000.
C) $500,000.
D) $1,100,000.
The Exclusive Gift Company has a monopoly over the sale of gold hula hoops. This
company is currently pricing and producing where marginal revenue is equal to
marginal cost. It is selling 50 gold hula hoops at a price of $5,000 each. Total costs for
the company are $300,000 of which fixed costs are $100,000. You are hired as an
economic consultant to this company. You should advise this monopolist to
A) shut down in the short run and exit the industry in the long run.
B) produce in the short run and expand capacity in the long run.
C) produce in the short run but exit the industry in the long run if conditions do not
change.
D) shut down in the short run but expand capacity in the long run if conditions do not
change.
Relating to the Economics in Practice on page 385: In the United States, prescriptions
filled for beneficiaries of Medicare total
A) less than 5%.
B) roughly 25%.
C) almost 60%.
D) over 90%.
Figure 8.4
Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven's average fixed
costs are
A) $33.33.
B) $83.33.
C) $116.67.
D) indeterminate from this information.
Margaret Thatcher, the prime minister of Great Britain in the 1980s introduced a new
system to replace local government taxes. The rates were replaced by the Community
Charge or 'Poll Tax', which applied the same amount to every individual resident, with
an 80% reduction for the unemployed. In spite of the fact that this tax was unpopular
and was eventually repealed can you think of any reason why it could be characterized
as efficient? Can you think of any way that this tax could be evaded?
If the firm is using only one variable input, explain why the condition W = MRPL is the
same condition as P = MC.
Colleges and universities often do not pay salaries that are market-driven. For example,
it is typical for a history professor to make the same as an economics professor. What
kinds of problems are likely to result from this kind of a pay scale?
Explain the law of diminishing returns.
Fred's Bar and Grill hires you to determine the company's status. The data below
provides information on the company's annual costs and revenues.
Fred spends at least 40 hours a week at his place of business. If he closed the bar, he
could work for his competitor and earn $30,000 per year. He also owns the building that
houses the bar and could rent it out for $24,000 per year if he closes his business.
Calculate the economic cost and economic profit for Fred's Bar and Grill.
What is the utility-maximizing rule?
When the price of corn increases, the quantity of corn demanded falls. Explain this
change in terms of income and substitution effects.
Suppose a country produces two goods: corn and cars. New technology is developed
that increases the amount of corn that can be produced. Use a graph to show the effect
of this graph on the country's production possibility frontier. Explain what occurs in the
graph.
What is meant by imperfect information?
What is the Coase theorem?
Besides the fact that the elderly are often on fixed incomes can you think of another
reason why most local taxing authorities grant homeowners aged 65 and older school
tax exemptions?
Suppose that a paper producer dumps its waste into a local river. Explain why this
situation is inefficient.
Suppose that a state needs to build both prisons and schools with a budget limited to 10
million dollars. Schools cost $1 million each to build and prisons cost $2 million each
to build.
Assume that the price of a prison falls to $1.5 million and that the price of school
production rises to $2 million each. Draw the new production possibilities frontier.
What is the new opportunity cost of producing one more prison?
What are public goods?
Refer to the figure below. What can we say about the relative sizes of the income and
substitution effects?
Critics of advertising argue that advertising by its very nature imposes a cost on society.
Explain what these costs are.
Using a supply and demand curve show what economists mean when they say that land
is "demand determined." Explain your answer.
What is imperfect competition?
