Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC =
MC = $200. At the profit-maximizing output and price for a monopolist, total surplus is:
A) $3,200.
B) $4,800
C) $1,000.
D) $1,600.
Table: Wages and Hours Willing to Work
(Table: Wages and Hours Willing to Work) Look
at the table Wages and Hours Willing to Work. If it was graphed, the relationship
between wage per hour and hours willing to work would be:
A) linear.
B) coordinated.
C) nonlinear.
D) negatively sloped.
In economics, the assumption is that consumers and firms will make choices that
maximize the _____ of each activity.
A) total profit
B) total benefit
C) sum of total benefit and total cost
D) product of total benefit and total cost
The _____ identifies the level of income at which half of the households in the
population earn more and half of the population earns less.
A) median household income
B) mean household income
C) poverty level
D) Gini coefficient
In general, economists are critical of monopoly where there is (are):
A) no natural monopoly.
B) a natural monopoly.
C) only a few firms.
D) persistent economies of scale.
Taxes are a more effective method of controlling pollution than environmental
standards because:
A) standards allow greater flexibility.
B) standards require less information.
C) standards never require the efficient level of output.
D) taxes encourage reducing pollution at the lowest possible cost.
The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the
price rises to $7, consumers will decrease consumption to 4 notebooks. Using the
midpoint formula, what is the price elasticity of demand for notebooks?
A) 0.33
B) 3
C) 0.17
D) 6
In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers.
Therefore, _____ has a(n) _____ advantage in making hamburgers.
A) Sarah; comparative
B) Sarah; absolute
C) Abe; comparative
D) Abe; absolute
Mr. Black always consumes coffee and cream in fixed proportions8 ounces of coffee to
1 ounce of cream. This implies that for Mr. Black the marginal rate of substitution of
coffee for cream is:
A) 0.125.
B) 8.
C) diminishing but between 8 and 1.
D) undefined.
Figure: Water Works
(Figure: Water Works) Look at the figure Water Works, which describes a small town’s
water works, a natural monopoly. If regulators require the water works to charge the
price that eliminates deadweight loss, the water works will serve _____ customers.
A) 200
B) 300
C) 375
D) 400
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. At the socially optimum amount of land dedicated to the public
park the marginal social benefit will be:
A) $225.
B) $150.
C) $100.
D) $0.
(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How many hats should the Saints produce, and what price should the organization
charge to maximize its profits?
A) 1; $28
B) 2; $26
C) 3; $24
D) 4; $22
Figure: The Market for Calculators
(Figure: The Market for Calculators) Look at the figure The Market for Calculators.
Assume that S and D represent the domestic demand and supply of calculators. The
world price, PW, equals $100. The government imposes an import tariff of $20 per
calculator. Compared with the free trade situation, the tariff leads to a deadweight loss
equal to area:
A) K + L.
B) G + J.
C) G + H + I + J.
D) There is no deadweight loss, since the tariff revenue the government receives offsets
any losses.
Increases in the price of the good measured on the vertical axis will make the vertical
intercept _____ and make the budget line _____.
A) larger; steeper
B) larger; flatter
C) smaller; steeper
D) smaller; flatter
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $2.25 and $2.00?
A) 4.00
B) 5.67
C) 9.00
D) 17.60
If the _____ differ(s) between two countries, this suggests the possibility for mutually
advantageous trade.
A) currency
B) factor endowments
C) exchange rate
D) level of government spending for defense
Figure: Consumer Equilibrium II
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra
consumes at point G. Ashyra would be able to realize more total utility by choosing
point _____, all other things held equal.
A) J
B) K
C) I
D) H
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve
represents the marginal cost of providing streetlights in a neighborhood that is
composed of two people, Ann and Joe. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to AC. Providing F streetlights is _____
because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to
B) efficient; greater than
C) inefficient; greater than
D) inefficient; less than
Housing tends to take up a substantial share of a consumer’s spending. An increase in
the price of housing will result in:
A) both an income and substitution effect to decrease the quantity demanded of
housing.
B) both an income and substitution effect to increase the quantity demanded of housing.
C) the income effect of increasing the quantity demanded of housing and the
substitution effect of decreasing the quantity demanded of housing.
D) the income effect of decreasing the quantity demanded of housing and the
substitution effect of increasing the quantity demanded of housing.
If a Florida strawberry wholesaler operates in a perfectly competitive market, that
wholesaler will have a _____ share of the market, and consumers will consider her
strawberries and her competitors’ strawberries to be _____. Therefore, _____
advertising will take place in this market.
A) large; standardized; no
B) small; standardized; little or no
C) small; differentiated; no
D) large; differentiated; extensive
The slope of a straight line is the ratio of the:
A) vertical change to the horizontal change.
B) horizontal change to the vertical change.
C) run over the rise.
D) vertical change to the horizontal change, and it must be positive.
(Table: Output and Costs) Look at the table Output and Costs. When output is 4, total
variable cost equals:
A) $48.
B) $38.
C) $58.
D) $28.
The implicit cost of capital is:
A) the expense associated with leasing machines.
B) the expense associated with buying machines.
C) the opportunity cost of capital used by a business.
D) irrelevant for determining economic profit.
The number of seats in a football stadium is fixed at 70,000. The team raises the price
of a ticket from $30, at which 70,000 are sold, to $40, and it sells 60,000 tickets. The
price change caused a change in the consumer surplus of:
A) “$10.
B) “$650,000
C) “$100,000
D) “$10,000
If a firm wants to charge different customers different prices, it must be:
A) a price taker.
B) in perfect competition.
C) a price setter.
D) a price setter in perfect competition.
Inefficient allocations of goods to consumers often result from:
A) price ceilings.
B) producer surplus.
C) equilibrium prices.
D) consumer surplus.
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases two mixers, her average total cost _____ in the range of output between
100 and 400 cakes.
A) increases
B) decreases
C) remains the same
D) can’t be calculated
If an individual’s labor supply curve is upward-sloping at low wage rates and
downward-sloping at high wage rates, then at higher wage rates:
A) there is no substitution effect as wages change.
B) there is no income effect as wages change.
C) the income effect dominates the substitution effect.
D) the substitution effect dominates the income effect.
If equilibrium exists:
A) all individuals must have an equal amount of income.
B) the price in that market will not fluctuate by more than 5%.
C) there will be no remaining opportunities for individuals to make themselves better
off.
D) the number of buyers will equal the number of sellers.