(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. If these two producers
formed a cartel, split the production of output equally, and acted to maximize total
industry profits, each firm’s output would be _____ and each firm’s profit would be
_____.
A) 500; $2,500
B) 250; $1,250
C) 1,000; $500
D) 1,000; $10,000
(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of
Sweatshirts. The marginal benefit of producing the fourth sweatshirt is:
A) $58.
B) $14.
C) $13.
D) $12.
The relation between two variables that move in opposite directions is said to be:
A) independent.
B) positive.
C) direct.
D) negative.
Figure: The Market for Candy
(Figure: The Market for Candy) Look at the figure The Market for Candy. A surplus of
the good will exist at a price of:
A) P1.
B) P2.
C) P3.
D) There are no surpluses in this market.
Suppose the government increases the child tax credit, which increases the after-tax
income of families with children. How will this decision affect the amount of labor
supplied by parents, assuming that leisure is a normal good?
A) Since the income and substitution effects move in the same direction, the amount of
labor supplied will increase.
B) Since the income effect will dominate the substitution effect, the amount of labor
supplied will decrease.
C) We don’t know what will happen to the quantity of labor supplied, since we don’t
know whether the income effect or substitution effect will dominate.
D) The labor supply curve will shift right, so the quantity of labor will also increase.
If the government imposes a $5 excise tax on leather shoes and the price of leather
shoes does not change:
A) the government will receive less tax revenue than anticipated.
B) consumers are paying all of the tax.
C) producers are paying all of the tax.
D) consumers and producers are paying equal amounts of the tax.
Figure: Income and Substitution Effects
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is consuming his optimal consumption bundle at point A when the price
of gasoline falls. The dashed line tangent to I1 shows a hypothetical budget line
reflecting:
A) the original income, the original price of cell phone minutes, and the new price of
gasoline.
B) the new price of gasoline in terms of cell phone minutes and a change in income to
keep Carlos on the original indifference curve.
C) the new price of gasoline in terms of cell phone minutes and a change in income to
allow Carlos to reach an indifference curve higher than I1.
D) the income and substitution effects.
Assume that as the price of cauliflower falls, the income effect causes consumers to buy
fewer heads of cauliflower. We can conclude that cauliflower is:
A) an inferior good.
B) nasty tasting.
C) a normal good.
D) expensive.
Suppose that you build a new jumbo jet that can carry five times more passengers than
any other competitor. You have high fixed costs due to the quantity of capital used to
build the jets, and average cost is decreasing for all levels of demand. In this case, your
monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.
French fries and hamburgers are complements in consumption. Suppose the cost of the
ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then
the equilibrium relative price of french fries _____ and the equilibrium quantity _____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
The amount by which the use of an additional unit of a factor of production increases a
firm’s total revenue during a period is called the:
A) value of the marginal product.
B) average product.
C) marginal factor cost.
D) marginal physical product.
Two goods in an individual’s consumption bundle are perfect substitutes. For a given
amount of income, the individual’s optimal consumption bundle will contain:
A) exactly 50% of each of the two goods.
B) only the good with the lower price.
C) only the good with the higher price.
D) all of the good on the horizontal axis.
Figure: PPV
(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company practices perfect price
discrimination, then it will sell _____ subscriptions.
A) 10
B) 8
C) 6
D) 0
There will be an increase in factor demand because of a(n) _____ in the price of the
_____.
A) increase; factor
B) increase; good the factor produces
C) decrease; factor
D) decrease; good the factor produces
A monopoly is a market characterized by:
A) a single seller.
B) a product with many close substitutes.
C) a large number of small firms.
D) a small number of large firms.
A public good is a good or service for which exclusion is _____ and which is _____ in
consumption.
A) possible; rival
B) possible; nonrival
C) not possible; rival
D) not possible; nonrival
Figure: Income and Substitution Effects
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is consuming his optimal consumption bundle at point A when the price
of gasoline falls. As Carlos moves to his new optimal consumption bundle, we observe
that gasoline:
A) is not an ordinary good.
B) is a normal good.
C) is an inferior good.
D) and good L are complements.
(Table: Production Function for Soybeans) Look at the table Production Function for
Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which
have a combined cost of $150 per day. The cost of labor is $100 per worker per day.
The variable cost of producing 25 bushels of soybeans is:
A) $50.
B) $100.
C) $150.
D) $250.
In the United States, taxes tend to be regressive at:
A) federal, state, and local levels.
B) federal and state levels.
C) state and local levels.
D) no levels of government.
Suppose a firm sells a good for a perfectly competitive price of $5. The equilibrium
wage rate is $10. The first worker it hires produces five units. Two workers produce a
total of nine units. Given this information, the firm will:
A) hire the first worker only.
B) hire both the first and second workers.
C) not hire either worker.
D) hire only the second worker.
In economics, the ability of pumpkin pie to satisfy a want is referred to as its:
A) utility.
B) usefulness.
C) worthiness.
D) necessity.
When someone says resources are scarce, this suggests that:
A) lower-income individuals must be especially careful about the choices they make.
B) choices must be made to utilize resources in the best manner possible.
C) additional resources could be found if there were additional funds allocated to the
effort.
D) we have enough resources to meet all of our needs and wants.
Saudi Arabia has a tremendous comparative advantage in petroleum. Which of the
following is a source of this comparative advantage?
A) mild temperatures
B) large reserves of crude oil
C) no opportunity cost associated with oil production
D) high tariffs on oil from other nations
Figure: The Market for Milk
(Figure: The Market for Milk) Look at the figure The Market for Milk. With a binding
price floor, the price could be equal to _____, consumers would demand _____, and
producers would supply _____.
A) P1; Q1; Q3
B) P2; Q2; Q2
C) P1; Q3; Q1
D) P3; Q3; Q1
Suppose a perfectly competitive market is suddenly transformed into one that operates
as a monopoly market. We would expect price to _____, output to _____, consumer
surplus to _____, producer surplus to _____, and deadweight loss to _____.
A) rise; fall; rise; rise; fall
B) rise; fall; fall; fall; rise
C) rise; fall; fall; rise; rise
D) fall; rise; rise; fall; fall
Price discrimination is the practice of:
A) charging different prices to buyers of the same good.
B) paying different prices to suppliers of the same good.
C) equating price to marginal cost.
D) equating price to marginal revenue.