The sources of product differentiation do NOT include:
A) differences in location.
B) differences in quality.
C) the perception by consumers that products are different, even if they are physically
identical.
D) consumers’ value in uniformity.
Figure: Strawberries and Submarines II
(Figure: Strawberries and
Submarines II) Look at the figure Strawberries and Submarines II. Suppose the
economy is operating at point A. The first submarine, which is achieved at point B,
would have an opportunity cost of _____ million tons of strawberries.
A) 50
B) 150
C) 400
D) 950
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two
producers have formed a cartel, agreed to split production of output evenly and are
maximizing total industry profits. Total industry output would be _____ gadgets.
A) 10
B) 5
C) 50
D) 500
Suppose you manage a corner grocery store. If peanut butter is an inferior good, what
do you suppose would happen to the price and quantity sold of peanut butter as incomes
fell during a recession?
A) The price would increase and the quantity would decrease.
B) The price and quantity would both increase.
C) The price and quantity would both decrease.
D) The price would decrease and the quantity would increase.
In economic analysis, at the optimal quantity of an activity:
A) marginal benefit exceeds marginal cost by the greatest amount.
B) total benefit exceeds total cost by the greatest amount.
C) marginal benefit equals marginal cost.
D) total benefit exceeds total cost by the greatest amount and marginal benefit equals
marginal cost.
According to many economists, the government should:
A) reduce the level of carbon emissions as far as possible.
B) use its policies to achieve the least-cost reduction of carbon emissions.
C) set policy to achieve the efficient level of pollution by reducing the costs of
pollution, which will always increase the benefits to society.
D) reduce carbon emissions whenever the marginal cost exceeds a predetermined level
set by the courts.
Figure: Rita’s Time Allocation Budget Line
(Figure: Rita’s Time Allocation Budget Line) Look at the figure Rita’s Time Allocation
Budget Line. It is based on 80 hours available for labor and leisure. Rita chooses 40
hours of leisure and income of $280. When her hourly wage doubles, Rita chooses 50
hours of leisure and income of $420. The substitution effect is making her work _____,
the income effect is making her work _____, and the substitution effect is _____ than
the income effect.
A) more; less; stronger
B) less; more; stronger
C) more; less; weaker
D) less; more; weaker
To be called an oligopoly, an industry must have:
A) independence in decision making.
B) a horizontal demand curve.
C) a small number of interdependent firms.
D) relatively easy entry and exit.
A trust:
A) is a government agency that regulates natural monopolies.
B) is the new organization that is formed when two firms merge.
C) occurs when shareholders of the major companies in an industry turn over their
shares to a board of trustees who then control all of the companies.
D) is another name for a large insurance company.
(Table: Cost Data) Look at the table Cost Data. The average total cost of producing 4
purses is:
A) $12.50.
B) $47.50.
C) $50.00.
D) $82.50.
An increase in efficiency means that an economy has:
A) reduced its opportunity costs.
B) increased the equity of its distribution of goods and services.
C) made more people better off without making others worse off.
D) increased the incentives for its citizens to follow their own self-interest.
A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and
$5 in average fixed cost. The total cost of producing 10 pairs of eyeglasses is:
A) $35.
B) $50.
C) $300.
D) $350.
If the United States imposes an import quota on French wines, the result in the short run
is likely to be _____ profits for American wine producers and _____ profits for French
wine producers.
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
A fair insurance policy is one whose premium is _____ the expected value of the
claims.
A) equal to
B) greater than
C) less than
D) unrelated to
Figure: Consumer and Capital Goods
(Figure: Consumer and Capital Goods)
Look at the figure Consumer and Capital Goods. The movement from curve 1 to curve
2 indicates:
A) economic growth.
B) a change from unemployment to full employment.
C) a decrease in the level of technology.
D) instability.
(Table: Producer Surplus) Look at the table Producer Surplus. If the price of a ticket to
see The Nutty Nutcracker is $50 and there is no other market for tickets, then total
producer surplus for the five students is:
A) $50.
B) $74.
C) $100.
D) $276.
Goods are _____ when the cross-price elasticity of demand is positive and _____ when
the cross-price elasticity of demand is negative.
A) substitutes; complements
B) complements; substitutes
C) elastic; inelastic
D) inelastic; elastic
The price elasticity of demand is computed as the percentage change in the _____
divided by the percentage change in _____.
A) quantity demanded; the quantity supplied.
B) price; the quantity demanded.
C) quantity demanded; income.
D) quantity demanded; the price.
The Gini coefficient:
A) varies between 0 and 1.
B) is also equal to the mean household income for a country.
C) is the same for most industrially developed countries.
D) is seldom used, since it does not help one understand income inequality.
Microeconomics deals with:
A) the working of the entire economy or large sectors of it.
B) economic growth.
C) individual decision makers in the economy.
D) gross domestic product.
When the government imposes an excise tax, the deadweight loss is caused by:
A) equal the tax revenue paid to the government.
B) be greater than the tax revenue paid to the government.
C) be less than the tax revenue paid to the government.
D) prevention of transactions because of the cost of the tax.
Lucy decides to buy car insurance because:
A) she wishes to increase her exposure to risk.
B) she wants to decrease her exposure to risk.
C) she is not risk-averse.
D) her marginal utility is not strongly dependent upon her income.
Figure: The Gasoline Market
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline supplied by producers, shifting the
supply curve upward. What is the tax rate?
A) $1.75 per gallon
B) $1 per gallon
C) $2.50
D) $0.50
Which of the following is TRUE?
A) The long-run industry supply curve relates the price of a good or service to the
quantity produced after all adjustments to a price change have been made.
B) Every point on a long-run industry supply curve shows a price and quantity supplied
at which firms in the industry are earning positive economic profit.
C) For establishing the long-run industry supply curve, factor costs and the number of
firms are held constant.
D) In perfectly competitive industries, the long-run supply curve is always horizontal.
Figure: The Market for Gas Stations
(Figure: The Market for Gas Stations) Look at the figure The Market for Gas Stations.
This market is characterized by many firms, differentiated products, easy entry, and
easy exit. In long-run equilibrium, the economic profit earned by the typical gas station
will be:
A) equal to the level shown in the figure.
B) negative.
C) zero.
D) Not enough information is given to answer the question.
The price of pretzels increases and the demand for tortilla chips decreases, so we can
assume that these two goods are:
A) unrelated.
B) inferior.
C) complementary.
D) substitutes.
Figure: The Total Product
(Figure: The Total Product) Look at the figure The Total Product. When L2 labor is
hired, the total product is at a _____ and the marginal product of labor is _____.
A) minimum; zero
B) maximum; zero
C) maximum; positive
D) minimum; positive but falling
The law of demand implies that:
A) consumers are not responsive to price changes.
B) consumers will buy more at lower prices.
C) sellers will offer more on the market at higher prices.
D) sellers will offer less on the market at lower prices.
If they spend all night writing computer programs, Laurence can write 10 programs,
and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can
make 6 pairs, and Carrie Anne can make 4. We know that:
A) Laurence’s opportunity cost of writing programs is less than Carrie Anne’s.
B) Laurence’s opportunity costs of writing programs and of making sunglasses are less
than Carrie Anne’s.
C) Carrie Anne’s opportunity costs of writing programs and of making sunglasses are
less than Laurence’s.
D) Carrie Anne’s opportunity cost of writing programs is less than Laurence’s.
If a good is very inexpensive but is a necessity, you predict that demand for the good:
A) is price-elastic.
B) is price-inelastic.
C) is price unit-elastic.
D) has indeterminable price elasticity.
(Table: Marginal Utility per Dollar IV) Look at the table Marginal Utility per Dollar IV.
If Ashyra has $40 to spend on potatoes and clams, then the utility-maximizing
combination is _____ pounds of clams and _____ pounds of potatoes.
A) 3; 4
B) 2; 5
C) 1; 8
D) 2; 6
In terms of contribution to total income in the United States, the single most important
factor of production is:
A) capital.
B) labor.
C) natural resources.
D) entrepreneurship.
Advertising is an example of:
A) tacit collusion.
B) nonprice competition.
C) antitrust policy.
D) price leadership.