Only those products in which a country has a comparative advantage will be
competitive in world markets.
Labor market compensation contracts can be designed to screen out poor quality
workers as well as provide employees with incentives to work hard.
When the price of a good increases, the budget constraint shifts in parallel to the
original budget constraint.
When wages increase, the net effect on the level of capital used depends on the relative
magnitudes of the factor substitution and output effects.
The value of the best alternative foregone is the opportunity cost of making a decision.
If government officials are mainly interested in generating tax revenue, then they
should tax goods for which demand is price elastic.
Behavioral economics uses insights from both psychology and economics.
A U.S. import fee on steel would reduce imports and lower the price of U.S. steel
products.
The law of diminishing marginal utility implies that as a household consumes more of a
product, its total utility will increase by larger amounts assuming marginal utility
remains positive.
Game theory was first developed by John von Neumann and Oskar Morgenstern.
Market socialism is characterized by private ownership of firms but collective
allocation of goods.
Household income comes from three main sources: wages and salaries, property, and
government.
Labor is demanded by firms in an input market.
Evidence shows that firms in less concentrated industries spend more on R & D than
firms in more highly concentrated industries.
National defense is an example of a public good.
The primary function of Temporary Assistance for Needy Families has been to provide
funds for reuniting families.
Stability implies a steady rate of economic growth and low inflation.
Average total cost is minimized at a higher level of output than average variable cost.
Economic theories of population growth suggest that fertility decisions made by poor
families should be viewed as uninformed and uncontrolled.
The automobile industry is a good example of a monopolistically competitive industry.
If Harold runs a grocery store and is making a normal rate of return, we can infer that
he is also making an economic profit.
Entrepreneurs are unnecessary in a market economy, and their profit is unearned.
An efficient outcome may not be reached by requiring the individual who produces the
externality to fully compensate individuals for any damage inflicted.
A shortage is when there is an excess supply in a market.
The notion that buyers determine what will be produced by choosing what they
purchase is called consumer sovereignty.
A monopolistically competitive firm maximizes profit by producing where marginal
revenue equals marginal cost.
Related to the Economic in Practice on page 717: Corruption often leads to more
efficient firms producing the goods and services in a society.
National defense is an example of an externality.
The argument most often used in favor of redistribution is that a society as wealthy as
the United States has a moral obligation to provide all its members with the basic
necessities of life.
Within the range of exchange rates that permits specialization and trade to take place,
the exchange rate will determine which country gains the least from trade.
The “economic problem” is that given scarce resources, how do large societies go about
answering the basic economic questions of what will be produced, why it will be
produced, and how it will be equitably distributed.
Human capital shortages are a barrier to economic growth in developing countries.
About 60 percent of American women over the age of 16 are in the labor force.
A positive cross-price elasticity between two goods implies that the two goods are
substitutes.
Perfectly competitive industries are characterized by a homogeneous product.
If a firm’s total costs are $75 when it produces 10 units of output and $80 when it
produces 11 units of output, then the marginal cost of producing the 11th unit is
A) $1.
B) $5.
C) $8.09.
D) $10.
Monopolistically competitive firms ________ because in long-run equilibrium, price is
________ than marginal cost.
A) prevent the efficient use of resources; less than
B) prevent the efficient use of resources; greater than
C) use resources efficiently; greater than
D) use resources efficiently; equal to
The phrase ceteris paribus means
A) ‘scarcity is a fact of life.”
B) “all else equal.”
C) “there is no such thing as a free lunch.”
D) “everything affects everything else.”
Figure 6.1
Refer to Figure 6.1. Assume Tom is on budget constraint AC and the price of a
hamburger is $4.00. Tom’s monthly income is
A) $20.
B) $60.
C) $80.
D) $100.
Studies by the World Bank during the 1970s indicate that
A) growth in GDP always leads to economic development.
B) growth in GDP does not guarantee improvements in development indicators.
C) growth in GDP improves education, nutrition and health.
D) growth in GDP decreases the GDP per capita.
You use $5,000 of your own money to start a dog-walking business. During the first
year you earn a 6% return on your investment. If the current interest rate is 8%, you
earn an economic profit of
A) -$60.
B) -$100.
C) $200.
D) $300.
If improvements in technology have reduced the cost of producing personal computers,
you accurately predict that in the market for personal computers, there will be a(n)
A) increase in the quantity supplied of personal computers, a reduction in the price, and
an increase in the quantity demanded.
B) increase in the supply of personal computers, a decrease in the price, and an increase
in the quantity demanded.
C) increase in the supply of personal computers, a reduction in the price, and an
increase in the demand.
D) decrease in the supply of personal computers, an increase in the price, and a
decrease in the demand.
Table 2.1
Refer to Table 2.1. For Pete, the opportunity cost of designing one tattoo is
A) 1/4 of an avatar design.
B) 2 avatar designs.
C) 4 avatar designs.
D) 6 avatar designs.
________ are generally produced by the government.
A) Public goods
B) Private goods
C) Externalities
D) Market failures
If marginal cost equals average variable cost, average variable cost will
A) be maximized.
B) decrease.
C) increase.
D) be minimized.
If the elasticity of labor supply is negative, the labor supply curve would be
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
If the elasticity of labor supply is positive, the labor-supply curve would be
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
Individuals usually behave so as to maximize their
A) wealth.
B) income.
C) utility.
D) opportunities.
Amy borrowed $40,000 from her parents to open a bagel shop. She pays her parents a
5% yearly return on the money they lent her. Her other yearly fixed costs equal
$18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 dozen at a
price of $2.50 per dozen.
Amy’s total fixed costs equal
A) $2,000.
B) $18,000.
C) $20,000.
D) $22,000.
Which of the following will definitely occur when there is a decrease in the supply of
and an increase in demand for wireless speakers?
A) an increase in equilibrium price
B) a decrease in equilibrium price
C) an increase in equilibrium quantity
D) a decrease in equilibrium quantity
Table 10.1
Refer to Table 10.1. If the payment to labor per day is $125, this T-shirt manufacturer is
maximizing profits if he will hire ________ employees.
A) two
B) three
C) four
D) five
Shifts in factor demand result from changes in
A) demand for outputs.
B) the quantity of other factors with which it works.
C) the price of other inputs.
D) All of the above are correct.
Related to the Economics in Practice on page 130: Assuming people wish to maximize
utility, those who choose to dine at more expensive restaurants rather than fast-food
restaurants must be receiving ________ from dining at the more expensive restaurant
than at the fast-food restaurant.
A) lower total utility
B) lower marginal utility
C) greater marginal utility per dollar
D) lower marginal utility per dollar
A non-discriminating monopolist maximizes total revenue when its marginal revenue is
________.
A) positive
B) zero
C) negative
D) equal to price
For the efficient level of output to be produced, marginal
A) damage cost must equal zero.
B) benefit must equal marginal private cost.
C) social cost must be zero.
D) benefit must equal marginal social cost.
The prisoner’s dilemma game presented in the text involves ________ players each with
________ strategies.
A) two; two
B) two; three
C) three; two
D) three; three
As a result of an increase in the Medicare tax that employers must pay on their
employees’ wages, employers reduce the starting wage for new employees. This is an
example of
A) tax shifting.
B) tax incidence.
C) a regressive tax.
D) tax avoidance.
Firms ________ in monopolistic competition due to product differentiation.
A) have no control over price
B) have blocked entry
C) gain control over price
D) are limited in number
An increase in quantity demand caused no change in the equilibrium price. Thus,
demand must be
A) perfectly inelastic.
B) inelastic.
C) elastic.
D) perfectly elastic.
In a “black market,”
A) suppliers take advantage of buyers.
B) price is illegally below market price.
C) illegal trading at market prices takes place.
D) only illegal goods and services are traded.
Figure 3.13
Refer to Figure 3.13. The market is initially in equilibrium at Point B. If supply shifts
from S2 toS1, the equilibrium price will change from ________ and the equilibrium
quantity will change from ________.
A) $5.00 to $7.00; 10 to 7
B) $5.00 to $7.00; 4 to 7
C) $7.00 to $5.00; 7 to 4
D) $7.00 to $5.00; 7 to 10
Table 8.2
Refer to Table 8.2. If Sherry produces four pairs of earrings, her average fixed costs are
A) $4.
B) $20.
C) $25.
D) $100.
Figure 15.4
Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $75 and is a
monopolistically competitive firm. To maximize profits in the short run, this firm
should produce ________ personalized sweatshirts.
A) 0
B) 50
C) 70
D) 75
Figure 6.2
Refer to Figure 6.2. The slope of budget constraint AC is
A) -1/2.
B) -1.
C) -2.
D) indeterminate from this information because prices are not given.
The point of tangency between an isocost line and an isoquant is necessarily the
________ combination of inputs the firm can hire to produce that output level.
A) most costly
B) least costly
C) only
D) least effective
Figure 18.2
Refer to Figure 18.2. Which of the following statements is false?
A) Point A is more efficient than point B.
B) Point A is the best point that this society can obtain.
C) Both Pam and Molly are better off at point A than at point B.
D) From this information, it is impossible to determine if society is better off at point C
or point D.
When Little Furniture Company produces 100 chairs – its average variable cost is $25.
The marginal cost of the 101st chair is $22. If the firm chooses to produce the 101st
chair, what will happen to average variable cost? Explain.
What is an injunction?
Explain why growth is not necessarily synonymous with development.
What is microfinance?
Use a graph and comment on the following statement: “If an economy is producing at a
point on its production possibilities frontier, it could possibly produce more of one good
without giving up any of the other.”
Suppose you have saved $300. You can spend it on a new stereo or on a weekend skiing
trip. What is the opportunity cost of going on the skiing trip?
Explain the idea behind the benefits-received principle of taxation and provide an
example.
Define risk-loving behavior.
Explain the difference between partial equilibrium analysis and general equilibrium
analysis.
Define economic income. Give at least three examples.
What two things does the level of total variable costs depend on?
Why must long-run equilibrium in monopolistic competition occur at the point at which
the demand curve is tangent to the average total cost curve?
Consider the market for generic light beer, a product that only has “Light Beer” on its
label. We know that demand for generic light beer falls when income increases, demand
rises when the price of other beer increases, and that demand rises when the price of
potato chips falls.
Graph and explain the effect on equilibrium price and
quantity of an increase in the price of premium beer. How are the goods related?
Using the table above answer the following question. Assume that the marginal cost of
production for this firm is $0. If this firm is a monopolist and can only charge a unique
price in whole dollar amounts which price will he charge to maximize profits? How
much revenue would the firm collect? How would this answer change if this firm were
to practice perfect price discrimination?