Imperfect information on the part of buyers and sellers
A) will not stop the economy from achieving market efficiency, assuming the other
conditions for market efficiency hold.
B) is no longer a problem because the “truth-in-advertising” regulations have been
instituted.
C) remains a barrier to achieving market efficiency, at least in some industries.
D) cannot persist in a market economy.
Table 6.1
Refer to Table 6.1. The marginal utility of the second dozen oysters per day is
A) 20.
B) 30.
C) 44.
D) 104.
ABC Corp. is considering an investment project that costs $500 today. It expects the
project will yield income of $200 at the end of years 1, 2, and 3. If the interest rate is
10%, the firm
A) should undertake the investment.
B) should forgo the investment.
C) is just indifferent between undertaking the investment and not.
D) indeterminate from the given information
The marginal rate of transformation is
A) also called the marginal rate of substitution.
B) growth associated with technological advances.
C) the measure of diminishing marginal utility.
D) the slope of the production possibility frontier.
Figure 8.8
Refer to Figure 8.8. This farmer’s profit-maximizing level of output is ________ units
of output.
A) 200
B) 700
C) 1,000
D) 1,400
Let’s assume that two countries have imposed high tariffs on each other’s products and
services to the point where all trade between the two countries has disappeared. Assume
a newly elected member of parliament in one of the countries makes a proposal for
unilateral tariff reduction regardless of whether the other country wishes to follow suit.
Explain why such a policy change would actually be a good idea.
Figure 4.3
Refer to Figure 4.3. In the market for pencils, the quantity demanded will be greater
than the quantity supplied if the government imposes an effective
A) price floor.
B) price ceiling.
C) market equilibrium price.
D) price surplus.
Related to the Economics in Practice: The opportunity cost to Apple of having the hard
drive produced in Japan by Toshiba is
A) the wages paid to Japanese workers.
B) the components of the hard drive which are not produced by Toshiba.
C) having the hard drive produced by the next best available company.
D) the value-added captured by Apple in the United States.
A firm competing in a perfectly competitive labor market desires to
A) maximize marginal profit.
B) maximize total profit.
C) minimize marginal profit.
D) maximize average profit.
Figure 3.17
Refer to Figure 3.17. If this market is unregulated and the price is currently $30, you
would expect that the price of sunglasses would
A) remain at $30, because firms would not want to increase the price.
B) rise to $90, so the firm could meet its excess demand.
C) rise to $60, where quantity demanded equals quantity supplied.
D) rise, but the new price is indeterminate from the information provided.
Because resources are not equally well suited to producing all goods,
A) as more of a good is produced, the inputs used to produce that good will increase in
price.
B) the opportunity costs of producing a good will increase as more of that good is
produced.
C) the opportunity costs of producing a good will decrease as more of that good is
produced.
D) as more of a good is produced, the quality of that good declines, and therefore the
costs of production increase.
Figure 6.4
Refer to Figure 6.4. Bill’s budget constraint is AC. If the bell peppers price increases,
Bill’s budget constraint will be
A) AB.
B) AC.
C) AD.
D) The budget constraint is not depicted on the diagram.
Table 9.2
Refer to Table 9.2. If the market price is $56 and the firm produces 5 units of output,
then its profit would be
A) -$100.
B) -$88.
C) $0.
D) $36.
Figure 16.2
Refer to Figure 16.2. To force this firm to produce the ________ level of output, the
government should ________ of $10.00 per car.
A) market; impose a tax
B) efficient; impose a tax
C) market; issue a subsidy
D) efficient; issue a subsidy
A household is hurt on the ________ side when its net profits or wages fall, and it is
hurt on the ________ side when the prices of goods and services increase.
A) sources; uses
B) uses; sources
C) flow; stock
D) input; output
All of the following are programs in the Social Security system EXCEPT
A) the Old Age and Survivors Insurance program.
B) the Medicare program.
C) the Disability Insurance program.
D) the public assistance program.
The table shows the relationship between income and utility for Isabel.
Table 17.3
Refer to Table 17.3. Suppose Isabel has a 25% chance of becoming disabled in any
given year. If she does become disabled, she will earn $0. If Isabel does not become
disabled, she will earn her usual salary of $160,000. Isabel has the opportunity to
purchase disability insurance which will pay her her full salary in the event she
becomes disabled. Such an insurance policy be worth ________ to Isabel.
A) $0
B) less than $40,000 but more than $0
C) $40,000 or more
D) indeterminate from the given information
Figure 9.7
Refer to Figure 9.7. If MR = $5, then a profit maximizing firm will produce ________
units and earn ________.
A) 0; negative profits
B) 5; zero profits
C) 10; negative profits
D) 12; positive profits
If the marginal cost of producing a public good is less than society’s total willingness to
pay per unit, then
A) the optimal amount of the public good is being produced.
B) less than the optimal amount of the public good is being produced.
C) more than the optimal amount of the public good is being produced.
D) the amount of output being produced could be either greater than or less than the
optimal amount.
I have lived in a house on the Mississippi River for many years and have never seen a
flood. Therefore, there is no reason for anyone to buy flood insurance. This statement is
an example of
A) fallacy of composition.
B) post hoc, ergo propter hoc fallacy.
C) fallacy of inductive reasoning.
D) ceteris paribus fallacy.
Table 20.1
Refer to Table 20.1. Mexico has
A) a comparative advantage but not an absolute advantage in orange production.
B) a comparative advantage but not an absolute advantage in banana production.
C) an absolute advantage and a comparative advantage in banana production.
D) an absolute advantage and a comparative advantage in orange production.
Figure 7.9
Refer to Figure 7.9. The general formula for the slope of any of the isocost lines is
A) –PK/PL.
B) –PL/PK.
C) TC/PL.
D) TC/PK.
John Stuart Mill first proposed
A) the idea of utilitarian justice.
B) the theory of distributional justice.
C) the labor theory of value.
D) the theory of comparative advantage.
An example of forgoing present benefits in order to receive future benefits is
A) production.
B) saving.
C) consumption.
D) growth.
The formula (MPL)(MRX), where L is for labor and X is the output, is for
A) the marginal product of labor.
B) the marginal revenue from labor.
C) the marginal revenue product of labor.
D) total revenue of labor.
Related to the Economics in Practice on page 10: Prior to joining a fraternity, James
spent most of his evenings and weekends studying for his classes. Once he joined the
fraternity, James spent a majority of his evenings and weekends going to parties. This
change in behavior is best described by
A) the fallacy of composition.
B) the post hoc ergo propter hoc fallacy.
C) the problem of causality.
D) the ceteris paribus error.
A firm must be able to ________ competition if it is to exercise control over the price of
its product.
A) maximize
B) increase
C) not change
D) limit
The labor theory of value was developed by ________.
A) John Stuart Mill
B) John Rawls
C) Karl Marx
D) Jeremy Bentham
China has a comparative advantage in textiles and an absolute advantage in both textiles
and radios. Japan has a comparative advantage in radios. According to this scenario
A) Japan should import both radios and textiles.
B) China should export both radios and textiles.
C) China should export textiles and import radios.
D) Japan should export textiles and import radios.
Related to the Economics in Practice on page 318: A company selling iced tea
discovers that as sugar is added to tea, customers’ opinions of the taste of the tea rises
for the first few grams of sugar and then drops. Even so, the company chooses not to
add the amount sugar that would result in the best-tasting tea. Which of the following
would explain why adding less sugar could be a wise decision?
A) The price of sugar added to tea is much less significant than the price of other
ingredients, such as tea leaves.
B) Manufacturers of tea are required to clearly indicate the amount of sugar in their
products.
C) Teas with less sugar are more likely to appeal to health-conscious consumers.
D) Many products in the cold drink market are sold with substitutes for sugar, such as
high fructose corn syrup.
As interest rates ________, a firm would have to pay less now to purchase the same
number of future dollars.
A) fall
B) rise
C) remain unchanged
D) Interest rates have no bearing on the payment for future dollars.
The demand for oil rig workers off the coast of Louisiana is the same as the demand for
oil pipeline workers in North Dakota. The annual earnings of Louisiana oil rig workers
is 22% higher than the earnings of North Dakota oil pipeline workers. A possible
explanation for this is:
A) Louisiana oil rig workers can work only part of the year, but North Dakota oil
pipeline workers can work year round.
B) the amount of human capital needed to be a pipeline worker must be greater than the
amount of human capital necessary to be an oil rig worker.
C) Louisiana oil rig workers must face discrimination that is not encountered by North
Dakota oil pipeline workers.
D) being an oil rig worker in Louisiana must be more dangerous than being a pipeline
worker in North Dakota.
Figure 18.2
Refer to Figure 18.2. All of the following points represent an efficient outcome
EXCEPT
A) A.
B) B.
C) C.
D) D.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
In figure 4.6, consumer surplus is area [A + B + E] if price is
A) P1.
B) P2.
C) P3.
D) above P3.
What two things determine the cost of production?
Misty spends her entire weekly allowance of $15 on two goods: T-shirts (which cost
$10 each) and lipstick (which costs $5). What is the opportunity cost of a T-shirt? If her
parents raise her allowance to $20 per week, what happens to the opportunity cost of a
T-shirt?
Referring to Situation #1 suppose that you can now hire two workers. What is the
opportunity cost of the second executive’s work from the viewpoint of the company?
Explain.
Scenario 1
Suppose your professor grades you on ten examinations, all carrying equal weight for
the final grade in the course. Answer the following questions based on this information.
Refer to Scenario 1. The student has already taken 9 exams. His 9th exam was a 65 and
his 10th exam was higher than the 9th exam. What can we conclude has happened to his
average?
What happens to the present value of $1 one year from now if the market rate of interest
falls? Explain.
Explain how it is possible for marginal utility to fall while total utility is still on the
rise?
Explain the assumption of free disposal as it applies to indifference curve analysis.
Explain with the use of a graph how total revenue changes along a linear
downward-sloping demand curve.
What is the International Monetary Fund and what are its primary goals?
Assume the marginal product for a particular good is constant. Describe the shape of
the total product function that would accompany it.
Assuming that firms do not collude, compare the market outcome under oligopoly with
the outcome under monopoly.
Show graphically the effect of an increase in the wage paid to autoworkers on the
supply of new cars.
Scenario 1
Let’s say that you only have enough time to take two college courses in a semester. You
also only have 15 hours per week to devote to both courses ” French and Economics.
Assume that you could earn a “70” in both courses even if you didn’t study at all for
either course. If you study for either course your productivity is such that each hour
spent studying for a course earns you 2 points for your grade in that course.
Using Scenario 1 what would happen to your budget constraint if you came up with a
study technique that allowed you to earn 3 points for every hour spent studying
economics and still only 2 points for every hour spent studying French? What has
happened to the relative price of one hour of studying French?
When the price of a bagel rises from $0.45 to $0.65, the quantity of cream cheese
demanded falls from 12,000 to 10,000 ounces per year. Use the midpoint formula to
calculate the cross-price elasticity between bagels and cream cheese. What does the
sign imply about the relationship between these two goods?
What condition must be satisfied for the optimal level of a public good to be provided?
Explain the problem of the optimal provision of public goods.
Create an example of a Pareto efficient trade. Make sure that you explain why such a
trade is Pareto efficient.