The U.S. beer industry has an HHI of 3525. If two beer producers propose a merger that
would increase the industry HHI by 25 points, then the merger would be challenged
based on the change in the HHI.
If Holland decreases subsidies to its tulip growers, the price of tulips in the United
States will rise.
Productivity of an input is the amount of output produced per unit of input.
Investment in social overhead capital refers to investment in areas like education and
nutrition.
Product differentiation can lead to gains in economic welfare.
A monopolistically competitive firm influences market price by virtue of its size.
If as the variable on the Y-axis rises the variable on the X-axis rises, the relationship
between X and Y is said to be a positive relationship.
Comparative advantage refers to the ability to produce goods at a lower opportunity
cost, and therefore more efficiently, than a competitor.
Collectively owned resources tend to be overused, as no one has an incentive to
conserve them or use them optimally.
An industry in which there are five firms each accounting for 20 percent of the market
has an HHI of 2,000.
Normative economics seeks to understand behavior, but not make judgments.
A U.S. import fee on oil would reduce imports and raise the price of U.S. oil products.
Investment in social overhead capital refers to investment in areas like power plants and
road construction.
The diamond/water paradox is only true in theory, but no real-world examples have yet
to be discovered.
Traditionally, the airline industry has competed vigorously on price.
In long-run equilibrium for a monopolistically competitive firm, economic profit equals
zero, and yet the outcome is inefficient.
In imperfect competition, competition may take place in more levels than in perfect
competition.
In theory, a minimum wage should lead to unemployment, but there is no evidence of
such an effect.
According to Karl Marx, the value of any product is dependent upon the amount of
labor used in production.
For economic analysis, the short run is any period in which all inputs are variable
(regardless of the length of time involved).
Adverse selection and moral hazard are problems that arise when there is no
asymmetric information in a market.
Every good that the government provides is an example of a public good.
Labor market compensation contracts can be designed to either screen out poor quality
workers or provide employees with incentives to work hard, but not both.
Comparative advantage refers to the ability to produce at a lower opportunity cost than
a competitor.
As the distribution of income becomes more equal, the Lorenz curve comes closer to
the 45-degree line.
The funds that firms use to buy capital come directly or indirectly from the government.
An export subsidy lowers the domestic price of the product.
Positive economics seeks to understand behavior, but not make judgments.
Moral hazard occurs when one party to a contract changes his behavior in response to
that contract and thus passes on costs of that behavior to the other party.
Payments for capital include interest and rent.
An individual’s money income is generally larger than their economic income.
Industries may be oligopolistic due to economies of scale.
Selecting a section of microeconomics for which attendance is part of the grade (as
opposed to one where it is not) is NOT an example of a commitment device that will
get you to attend class.
One of the most important characteristics of information is that it is essentially a private
good.
If a country’s imports are greater than its exports, a country has a trade deficit.
The basic function of advertising, according to its proponents, is to assist consumers in
making informed, rational choices.
A diagram of an individual’s utility from income will be a line with an increasing slope
if the individual is risk averse.
The size of the firm is what differentiates oligopoly markets from the other three market
structure types (perfect competition, monopoly, and monopolistic competition).
Figure 16.2
Refer to Figure 16.2. The ________ amount of cars is 35.
A) efficient
B) unregulated
C) subsidized
D) break-even
The ________ capital in developing nations causes labor productivity to remain low.
A) lack of
B) subsidized
C) reassignment of
D) increase in privately controlled
You use $5,000 of your own money to start a dog-walking business. During the first
year you earn a 5% return on your investment. If the current interest rate on savings is
8%, you earn an economic profit of
A) -$150.
B) $150.
C) $250.
D) $400.
The price elasticity of demand for heart transplants is perfectly inelastic. Thus, the price
elasticity demand for heart transplants is
A) 1.0.
B) 0.
C) -1.0.
D) -100.0.
Economists use the phrase ceteris paribus to express the assumption
A) “all else equal.”
B) “everything affects everything else.”
C) ‘scarcity is a fact of life.”
D) “there is no such thing as a free lunch.”
Figure 6.2
Refer to Figure 6.2. Mr. Lingle’s budget constraint is AC. Point D is
A) an available option and Mr. Lingle exactly spends all of his income.
B) an available option and Mr. Lingle does not spend all of his income.
C) in Mr. Lingle’s opportunity set but is not on his budget constraint.
D) not available because it represents a combination of gardenburgers and beer that Mr.
Lingle cannot purchase with his current income.
The return to any factor of production that is in fixed supply is
A) pure profit.
B) pure rent.
C) producer surplus.
D) factor surplus.
The immediate and total deregulation of prices, liberalization of trade, privatization,
and development of financial institutions represent the ________ transition approach
from socialism to a market economy.
A) use-it-or-lose-it
B) gradualism
C) shock therapy
D) now-or-never
Figure 7.8
Refer to Figure 7.8 above. If Roller Skates Unlimited moves from isoquant A to
isoquant B, the number of roller skates produced
A) decreases.
B) increases.
C) remains constant, but Roller Skates Unlimited uses more capital and more labor.
D) remains constant, but input prices have risen.
Table 10.2
Refer to Table 10.2. The firm currently employs 4 workers at the market wage of $480
per worker per day. If the firm wants to maximize its profits, it should
A) hire fewer workers
B) hire more workers.
C) make no adjustments as it is already employing the profit maximizing number of
workers.
D) shut down since it is incurring a loss.
The statement “the unemployment rate is 5.1%” is an example of a
A) positive statement.
B) value judgment.
C) normative statement.
D) non-verifiable statement.
The law of diminishing marginal utility is effective when marginal utility is
A) positive and increasing.
B) positive and decreasing.
C) initially zero and then increasing.
D) initially zero and then decreasing.
The shape of a monopolist’s ________ schedule is a curve bowed out from the quantity
(horizontal) axis.
A) marginal cost
B) total cost
C) marginal revenue
D) total revenue
With microfinance, the mechanism of peer lending is a way to avoid the problem of
A) capital flight.
B) imperfect information.
C) the tragedy of the commons.
D) a double coincidence of wants.
The Do It Yourself Hardware Store is a monopolistically competitive firm. Its marginal
revenue curve
A) is identical to its demand curve.
B) lies below its demand curve intersecting the quantity axis at the same point at which
the demand curve intersects it.
C) lies below its demand curve intersecting the quantity axis midway between the
origin and the point at which the demand curve intersects it.
D) is below its demand curve if demand is elastic and above the demand curve if
demand is inelastic.
Figure 7.10
Refer to Figure 7.10. The slope of isocost AB is
A) greater than the slope of isocost CD.
B) less than the slope of isocost CD.
C) equal to the slope of isocost CD.
D) indeterminate from this information, as the prices of capital and labor are not given.
The process of using ________ to produce new capital is known as ________.
A) money; specialization
B) resources; investment
C) specialization; absolute advantage
D) comparative advantage; inefficient production
Assume the current interest rate is 20%. The present value of $900 in one year would be
A) $180.
B) $450.
C) $750.
D) $1,080.
A lawn service company has the following production possibilities. With one, two,
three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day,
respectively.
Diminishing returns to labor set in with the ________ worker.
A) first
B) second
C) third
D) fourth
Thailand has a comparative advantage in rice and an absolute advantage in both rice
and cell phones. Indonesia has a comparative advantage in cell phones. According to
this scenario
A) Indonesia should import both cell phones and rice.
B) Thailand should export both cell phones and rice.
C) Thailand should export rice and import cell phones.
D) Indonesia should export rice and import cell phones.
Figure 4.5
Refer to Figure 4.5. Assume that initially there is free trade. If the United States then
imposes a $10.00 tax per CD-Rom drive on imported CD-Rom drives,
A) the quantity of CD-Rom drives demanded will be reduced by 3 million.
B) the quantity of CD-Rom drives supplied by U.S. firms will increase by 3 million.
C) the price of CD-Rom drives in the United States will increase to $25.
D) all of the above
Which of the following characteristics is generally representative of developed
countries relative to developing nations?
A) a higher level of per capita GNI
B) a shorter life expectancy
C) a higher rate of infant mortality
D) a smaller percentage of children enrolled in school
The principle that the cost of something is equal to what is sacrificed to get it is known
as the
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) reality principle.
If a perfectly competitive firm is currently producing where P = MC and MC = ATC,
then the firm will earn ________ profits.
A) positive
B) zero
C) negative
D) above normal
Professional male golfers make far more income than do professional female golfers.
The reason for the wage difference is
A) gender discrimination.
B) the supply of male golfers is far greater than the supply of female golfers.
C) the demand for male golfers is far greater than the demand for female golfers.
D) compensating differentials.
In well-functioning markets, the degree of product variety reflects which of the
following?
A) similar preferences in consumers’ tastes
B) cost diseconomies from standardization
C) gains from network externalities
D) gains from coordination
Table 20.3
Refer to Table 20.3. If the exchange rate is $1 = 3 euros, then
A) the United States will import both peas and carrots.
B) France will import both peas and carrots.
C) the United States will import carrots and France will import peas.
D) the United States will import peas and France will import carrots.
Figure 4.2
Refer to Figure 4.2. The market is initially in equilibrium at Point A and supply shifts
from S1 to S2. Which of the following statements is true?
A) Price will still serve as a rationing device causing quantity supplied to rise from 8 to
11 soft pretzels.
B) There is no need for price to serve as a rationing device in this case because the new
equilibrium quantity is higher than the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to fall from 11
to 8 soft pretzels.
D) The market cannot move to a new equilibrium until there is also a change in supply.
Table 10.1
Refer to Table 10.1. The maximum payment to labor per day that this profit-maximizing
T-shirt manufacturer would be willing to pay to hire three workers per day is
A) $15.
B) $75.
C) $125.
D) $200.
At the point where total product is ________, marginal product is zero, but average
product is still positive.
A) maximized
B) minimized
C) zero
D) negative
Figure 8.4
Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven’s total variable
costs are
A) $500.
B) $700.
C) $1,200.
D) indeterminate from this information.
If the wage rate is greater than the marginal revenue product of labor, the firm should
________ to maximize profits.
A) hire less labor and produce less output
B) hire less labor and produce more output
C) hire more labor and produce less output
D) hire more labor and produce more output
A good whose demand is inversely related to income is a(n)
A) normal good.
B) inferior good.
C) regular good.
D) new good.
Product differentiation that makes the product ________ is known as vertical
differentiation.
A) more similar to the rival’s product
B) better for some consumers and worse for others
C) better than a rival’s product from everyone’s perspective
D) less expensive to produce
The demand for inputs is a derived demand because it depends on the
A) supply of outputs.
B) demand for outputs.
C) supply of inputs.
D) cost of production.
List four factors that may affect the demand for capital.
Assume that a union representative argues that the social security tax is essentially paid
for completely by the worker in the form of a lower wage equal to the amount of the
tax. If this person were correct what is implicitly assumed to be the shape of the labor
supply curve and why? Is this a reasonable assumption? Why or why not?
Explain why firms’ short-run marginal cost curves often initially decreases and then
increases.
Assume Ford Motor company purchases a robot that can do the welding work of ten
union workers. If the robot is a perfect substitute for labor what can we be sure is true
about the annual cost of using and maintaining one robot?
Over twenty years ago the city of Washington D.C. was facing a budgetary shortfall. In
a plan to increase tax revenue the mayor and city council agreed to raise the excise tax
on gasoline. Typically for goods like gasoline which are price inelastic this should have
led to an increase in tax revenue. However, just the opposite happened ” tax revenue
plummeted! What could explain this seemingly paradoxical result?
What is the solution to a simultaneous-move game when both sides do not have
dominant strategies?
List the three basic economic questions that all societies must answer.
Explain what will happen when the government imposes a maximum price that is
above the market equilibrium price. Why is this true?
Using the diagram below explain what will happen to equilibrium price and quantity if
the supply curve shifts to the left as depicted from So to S2.
Draw a linear demand curve and marginal revenue curve and the corresponding total
revenue curve below it.
List three things that can cause an increase in demand. Be specific.
Discuss the national security argument as a case against free trade. What is the problem
with this argument?
What does the cross-price elasticity of demand measure? How is it calculated?
Compare and contrast the marginal and average tax rates.
Suppose that an industry contains only four firms. The table below shows the market
share of each firm in the market. Calculate the Herfindahl-Hirschman index for the
industry.
The market for light bulbs is perfectly competitive and can be represented by the
following market demand and supply curves:
Draw the demand curve as seen by one firm in the light bulb industry. Explain the shape
of this curve.
What is export promotion? Give a few examples of countries that have tried it.
Table 4
Refer to Table 8.4. If Scott produces four pairs of shorts, what are his average variable
costs?
What are transfer payments?