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In general, the demand curve facing the monopolistically competitive firm is more
elastic than the demand curve facing the perfectly competitive firm.
If a group has a negative elasticity of labor supply (above some income level), then
continued increases in wages will result in continued increases in the quantity of labor
supplied.
A technological advance in the production of digital video recorders will cause them to
become less expensive.
Payments for capital include interest and profit.
Marginal cost refers to the incremental cost arising from a decision.
The more significant are economies of scale in an industry, the more product variety
will be observed.
Cartels are more successful when members play by the rules and the industry faces an
inelastic demand.
The level of household savings constrains firm investment.
The market system works by getting each person, motivated by his or her own
self-interest, to produce products for other people.
Social overhead capital guarantees economic growth.
Most economists do not believe that import-substitution strategies have been quite
successful around the world.
All points along a utility possibilities frontier are efficient and equally desirable.
Collective ownership of resources leads to economic efficiency.
Social goods are goods and services that bestow collective benefits on members of
society.
The demand for Tyson chicken is less elastic than the demand for meat.
According to the Coase theorem, bargaining will bring the contending parties to the
correct solution only if the rights are initially assigned to the party causing the
externality.
The Celler-Kefauver Act gave the Commerce Department the authority to monitor and
enforce the antitrust provisions from the Sherman Act.
Governments are not likely to achieve the optimal level of public goods or the correct
amount of control over externalities.
Oligopolists have market power.
A market is considered efficient if profit opportunities are eliminated almost
instantaneously.
The price elasticity of demand is generally negative to reflect the indirect relationship
between the quantity demanded of a good and its price.
A country is said to enjoy a comparative advantage over another country in the
production of a product if it uses more resources to produce that product than the other
country does.
Oligopolists compete on price but not quality.
Even if a market outcome is efficient, it may not be equitable.
For any pair of countries, there are many exchange rates that can lead automatically to
both countries realizing the gains from specialization and comparative advantage.
Nearly one in four African-Americans lives in poverty.
Counting the total number of individuals on any assistance program and multiplying by
the poverty line equals total transfer payments.
Assets minus liabilities equals wealth.
The fact that the behavior of one firm depends on the behavior of other firms is what
differentiates oligopoly markets from the other three market structure types (perfect
competition, monopoly, and monopolistic competition).
Goods are allocated in a market system by price rationing.
A country's balance of trade is always balanced.
A maximin strategy will maximize the maximum payoff that can be earned.
A perfectly competitive system results in an efficient allocation of resources among
firms and an equal distribution of final products among households.
Goods are allocated in a market system by nonprice rationing.
The impossibility theorem, demonstrated by Paul Samuelson, shows that it is
impossible to have public officials behave in a manner consistent with the best interests
of society.
Economic growth shifts a society's production possibility frontier toward the origin.
A perfectly competitive system results in an efficient allocation of resources among
firms and an efficient distribution of final products among households.
Game theory enables economists to fully understand and predict the behavior of
oligopolistic industries with more than two firms.
In the presence of market failure, government involvement will lead to efficient
outcomes.
Since a monopolistically competitive firm has a monopoly over the particular product it
produces, the firm is guaranteed a profit in the long run.
Figure 15.6
Refer to Figure 15.6. If Trollio's T-shirts is in long-run equilibrium, it is charging a
selling price of ________ and has an average total cost of ________.
A) $10; $10
B) $16; $10
C) $16; $16
D) $10; $16
The stock market, banks, and savings and loans are three examples of institutions that
economists would classify as belonging to the financial
A) savings markets.
B) investment market.
C) capital market.
D) labor market.
A price change would have the smallest income effect on a
A) pack of chewing gum.
B) desktop computer.
C) pair of shoes.
D) car.
A coffee manufacturer raises the price of its coffee by 10%, and the quantity demanded
of its coffee falls by only 12%. This firm has
A) no monopoly power in the output market.
B) some market power.
C) some output power.
D) not been able to prevent its competitors from competing with it on price.
Investors put up $52,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 percent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $3 on average per meal.
The restaurant's weekly economic profit is
A) positive.
B) negative.
C) zero.
D) break-even.
Table 19.3
Refer to Table 19.3. The tax rate structure in this example is
A) proportional.
B) progressive.
C) regressive.
D) marginal.
The concept of trade-offs would become irrelevant if
A) we were dealing with a very simple, one-person economy.
B) poverty were eliminated.
C) scarcity were eliminated.
D) capital were eliminated.
Figure 20.1
Refer to Figure 20.1. The opportunity cost of producing a bushel of soybeans in Canada
is
A) half a bushel of alfalfa.
B) 1 bushel of alfalfa.
C) 2 bushels of alfalfa.
D) zero.
If the unemployment rate increases from 10% to 14%, the economy will
A) move closer to a point on the ppf.
B) move away from the ppf toward the origin.
C) remain on the ppf.
D) remain on the origin.
Figure 3.3
Refer to Figure 3.3. As your income increased, the demand for X shifted from D1 to D2.
Good X is
A) an inferior good.
B) a normal good.
C) a luxury good.
D) an income-neutral good.
Assume Cathy's Cupcake Company operates in a perfectly competitive market
producing 10,000 cupcakes per day. At this output level, price exceeds this firm's
marginal and average variable costs. To maximize profits, Cathy's should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.
Investors put up $520,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $5 on average per meal.
If the restaurant were to shut down, losses per week would be
A) $1,000.
B) $1,600.
C) $2,000.
D) $3,600.
The reasons to study economics include which of the following?
A) to be an informed citizen
B) to understand society
C) to learn a way of thinking
D) all of the above
Consider the following game. You pick a card from a 52-card deck and each time you
select a queen, you get $520. For all other cards pay $26. The expected value of the
game is ________.
A) -$24
B) $0
C) $16
D) $64
Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise
from air traffic negatively affects individuals living in Playa Del Rey, however, this cost
is not considered by airlines or air travelers. The airlines feel they have a right to use the
airspace while the individuals living in Playa Del Rey feel they have the right to quiet.
The following diagram depicts the marginal costs and marginal benefits associated with
air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the airlines,
then the airlines and the residents engage in negotiations. The resulting efficient level of
air travel is ________.
A) 0 units
B) 100 units
C) 120 units
D) indeterminate from the given information.
Related to the Economics in Practice on page 28: Based on the increase in the number
of women in the labor force over the past 50 years, the opportunity cost of preparing a
home-cooked meal
A) decreased.
B) increased.
C) remained constant.
D) dropped to zero.
A government wants to reduce electricity consumption by 5%. The price elasticity of
demand for electricity is -0.5. The government must ________ the price of electricity
by ________.
A) raise; 10.0%
B) raise; 1.0%
C) raise; 0.1%
D) lower; 0.5%
Figure 8.4
Refer to Figure 8.4. Micro Oven's average fixed costs of producing six units of output
are
A) $83.33.
B) $300.
C) $500.
D) indeterminate from this information.
If firms do NOT account for external costs of production, then marginal social cost
A) equals marginal cost.
B) is less than marginal cost.
C) is greater than marginal cost.
D) is zero.
Table 20.1
Refer to Table 20.1. In Germany, the opportunity cost of 1 case of beer is
A) 1/2 case of wine.
B) 1 case of wine.
C) 2 cases of wine.
D) 5 cases of wine.
A government policy that tries to minimize inflation and unemployment can best be
described as trying to achieve economic
A) growth.
B) stability.
C) profitability.
D) equity.
If firms in a monopolistically competitive industry are earning economic profits, then in
the long run
A) these firms can continue earning economic profits because entry into the industry is
blocked.
B) new firms producing close substitutes will enter the industry and this entry will
continue until economic profits are eliminated.
C) new firms producing the exact same product will enter the industry and this entry
will continue until economic profits are eliminated.
D) the government will most likely regulate firms in this industry to reduce these
economic profits.
Any point on the utility possibilities frontier is ________.
A) inefficient because both people could be made better off simultaneously
B) inefficient because it is only possible to make one person better off by making the
other person worse off
C) efficient because it is only possible to make one person better off by making the
other person worse off
D) efficient because both people could be made better off simultaneously
Marginal damage cost is the
A) additional harm done by increasing the level of an externality-producing activity by
one unit.
B) additional cost to society resulting from a privately owned firm producing one more
unit of a product.
C) amount a consumer pays to produce an additional unit of a good.
D) additional cost to society resulting from a consumer consuming one more unit of a
good.
Because people enjoy the benefits of public goods whether they pay for them or not,
people are usually ________ to pay for them. This is known as the free-rider problem,
and is intrinsic to ________ goods.
A) willing; private
B) willing; public
C) unwilling; private
D) unwilling; public
Figure 3.19
Refer to Figure 3.19. When the economy moves from Point B to Point A, there has been
A) an increase in supply and a decrease in quantity demanded.
B) a decrease in both supply and demand.
C) a decrease in demand and a decrease in quantity supplied.
D) a decrease in supply and an decrease in quantity demanded.
Recent studies suggest that 40% of the population of the ________ nations have annual
incomes insufficient to provide for adequate nutrition.
A) developed
B) developing
C) developed and developing
D) underpopulated
When the price of radios decreases 5%, quantity demanded increases 5%. The price
elasticity of demand for radios is ________ and total revenue from radio sales will
________.
A) elastic; decrease
B) elastic; increase
C) inelastic; decrease
D) unit elastic; not change
Marginal cost is the
A) increase in total cost resulting from producing one more unit of output.
B) average cost of production divided by output.
C) increase in AVC resulting from producing one more unit of output.
D) equivalent of average total cost.
Related to the Economics in Practice on page 295: The smart phone industry is best
characterized as
A) purely competitive.
B) monopolistically competitive.
C) an oligopoly.
D) a monopoly.
Investors put up $520,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $5 on average per meal.
The normal return to the investors on a weekly basis is
A) $600.
B) $1,000.
C) $3,600.
D) $4,500.
Suppose the demand for books goes down when the price of video games goes down.
We can say that these two goods are
A) complements.
B) substitutes.
C) unrelated goods.
D) perfect substitutes.
Evaluate the following statement. The Cournot model basically assumes that the sole
decision of each firm in a duopoly is one of determining how much to produce not
which price to set.
List and describe four fields of economics.
According to the table above, would there be trade flows in both directions if the
exchange rate were $1 = 1 peso?
Explain the infant industry argument case against free trade.
What is meant by spreading overhead?
The oldest hamburger chain in the United States is White Castle, which was founded in
1921. Most of their restaurants in the early days were located in urban areas. In the
1950s they lost much of their business to McDonalds and Burger King. They were slow
to respond in building restaurants on highways and in suburbs. How did the advent of
the highway system in the 1950s alter residential location patterns and how might this
have affected the marginal revenue product of burger chains in both urban and suburban
areas. Why did sales drop off in the urban areas where White Castle had earned its
initial success?
Explain the time dimension as it relates to elasticity. Be sure to include in your answer
the difference in elasticity between the short run and the long run.
Why might an economist argue that it could be damaging to the economic growth of a
nation if it focused mostly on the production of consumer goods?
The ERT Company sells lead pencils in a perfectly competitive market for $5 per box
of a dozen pencils. The firm currently produces 2,500 boxes of lead pencils each week
and average total cost at this level of production is $5.15. What level of profit is this
firm earning? Explain.
Assume that you have data on a firm's average fixed cost and average variable cost for
various levels of output and you are asked to calculate the total variable cost and total
cost of the firm. Would this be enough information to perform this calculation? Explain
Assuming that firms do not collude, compare the market outcome under oligopoly with
the outcome under perfect competition.
Explain how it might be possible to discuss costs of production of a good or service
without using monetary values.
Suppose that the opportunity cost of a student's time is greater when he studies than
when he works. What mistake is he making and why?
What is the output level predicted by the Cournot model?
Many cities in California have severe land-use laws and ordinances, which effectively
take off the market large amounts of land for residential or commercial construction. If
the demand for housing increases in these cities without any increase in the stock of
housing or commercial buildings then what is the likely impact that this will have on
home prices and commercial structures? How might this affect where corporations
choose to locate factories?
What does it mean for a good to have a perfectly elastic demand? Draw a demand curve
of this type. Explain why it has the shape that it does.
