Susan’s price elasticity of restaurant meals is 2.27. If the price of a restaurant meal falls
by 2 percent, the quantity of restaurant meals Susan demands will:
A. increase by 2.27 percent.
B. fall by 2.27 percent.
C. increase by 4.54 percent.
D. increase by 22.7 percent.
Answer:
If supply is highly inelastic and demand shifts to the left:
A. price will fall significantly; quantity hardly changes at all.
B. price will hardly change at all; quantity will fall significantly.
C. price will fall significantly as will quantity.
D. price and quantity will hardly change at all.
Answer:
Refer to the graph shown. The oligopolist shown currently charges a price P1. It
believes that rival firms will:
A. gain market share if it lowers its price.
B. lose market share if it lowers price.
C. raise price if it raises price.
D. lower price if it lowers price.
Answer:
You are shown a graph of a monopolist in long-run equilibrium and a graph of a
monopolistically competitive firm in short-run equilibrium. How could you tell which
is which?
A. You probably could not.
B. In the graph of monopolistic competition, the MR curve could be closer to the
demand curve.
C. In the graph of monopoly, the MR curve would be closer to the demand curve.
D. In the graph of monopoly, the MC would slope upward.
Answer:
Which best characterizes the reason electricity was deregulated?
A. new technology
B. X-inefficiency
C. foreign competition
D. economies of scale
Answer:
After several years of slow economic growth, world demand for petroleum began to
rise rapidly in the 1990s. Much of the increase in demand was met by additional
supplies from sources outside OPEC. OPEC during this time was unable to restrain
output among members in its effort to lift oil prices. What best describes these events?
A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the
demand for oil back to the left.
B. The rise in demand shifted the demand for oil to the right. As price rose, supply of
oil also rose.
C. The rise in demand shifted the demand for oil to the right. As price rose, quantity of
oil supplied rose.
D. The rise in demand reflects a movement down along the demand curve as supply
shifted to the right when suppliers produced more oil.
Answer:
Say that an economic model concludes that “government can maintain current Social
Security benefit levels for every retiree by raising payroll taxes.” This conclusion is:
A. a normative statement because there is disagreement over whether Social Security
benefits should be maintained.
B. a positive statement because raising payroll taxes is one way to maintain Social
Security benefits.
C. a statement in the art of economics because it is about policy.
D. false because there is no payroll tax rate high enough to maintain current benefits.
Answer:
The opportunity cost of consuming good A is lower than the opportunity cost of
consuming good B. This means that good:
A. A has a higher marginal utility.
B. B has a higher marginal utility.
C. A has a higher marginal utility per dollar.
D. B has a higher marginal utility per dollar.
Answer:
Refer to the following graphs.
Which graph depicts a perfectly competitive firm that will minimize short-run losses by
producing zero output?
A. graph I
B. graph II
C. graph III
D. graph IV
Answer:
Refer to the graphs shown. If quantity supplied is a fixed amount that does not vary
with price, then the supply curve looks like:
A. I.
B. II.
C. III.
D. IV.
Answer:
Under normal monopoly, price exceeds marginal cost, which implies that the:
A. total cost to society of producing output is less than the total benefit.
B. total benefit to society of producing output is less than the cost.
C. marginal cost to society of increasing output is lower than the marginal benefit of
increasing output.
D. marginal cost to society of increasing output is greater than the marginal benefit.
Answer:
Which of the following is the best example of an adverse selection problem?
A. Once individuals are insured, they are less likely to take efficient precautions.
B. Individuals are unlikely to pay for something if they can receive the benefits for free.
C. When a firm pollutes the air, families living nearby suffer the consequences.
D. Individuals who seek to purchase health insurance have better information about
their health than do insurance companies.
Answer:
The following table shows four firms, the amount each pollutes, the marginal cost for
each firm to clean up pollution, and the total cost to each firm of eliminating all
pollution.
The total discharge of these four companies is 300 tons. Assume there is no one else
who pollutes.
Refer to the table shown. If the government establishes a regulation requiring each
company to reduce pollution by 50 percent, what will be spent on reducing pollution?
A. $660
B. $910
C. $1,050
D. $1,710
Answer:
The outsourcing of service jobs such as those in call centers has become a political
issue. Do economists see any benefit to outsourcing?
A. No; it simply shifts jobs overseas.
B. No; it only benefits foreign economies.
C. Yes; it tends to reduce prices to American companies and consumers.
D. Yes; it tends to raise the value of the dollar.
Answer:
Critics of advertising sometimes argue that the overall effect of advertising is to make
people believe that possessing lots of material goods is the only route to happiness.
These critics also believe that this is a misleading view of happiness. Hence, these
critics:
A. worry that consumers’ choices have positive externalities.
B. worry that consumers’ choices have negative externalities.
C. believe that distributional issues are the main problem with any economy.
D. reject the idea that all is well if the economy produces what people demand.
Answer:
Refer to the graph shown. Other things equal, an increase in the market price of this
product will cause:
A. an increase in total revenue and a decrease in the firm’s profit-maximizing level of
output.
B. an increase in total revenue and an increase in the firm’s profit-maximizing level of
output.
C. a decrease in total revenue and a decrease in the firm’s profit-maximizing level of
output.
D. a decrease in total revenue and an increase in the firm’s profit-maximizing level of
output.
Answer:
The demand for a good is inelastic. Which of the following would be an explanation for
this?
A. The good is a necessity.
B. The good is specifically defined.
C. The good costs a large portion of one’s total income.
D. The time interval considered is long.
Answer:
Efficiency wages tend to:
A. increase costs in the short run but reduce them in the long run.
B. raise costs in both the long run and the short run.
C. reduce costs in both the long run and the short run.
D. reduce costs in the short run but increase them in the long run.
Answer:
Which of the following ultimately must decide what externalities should be addressed?
A. Consumers
B. The market
C. Government
D. Firms
Answer:
Suppose that a consumer has a health insurance program with co-payments of $10 per
doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor
for 6 visits is $360, the portion of this cost covered by a third-party payer is:
A. $60.
B. $300.
C. $360.
D. $420.
Answer:
Refer to the graph shown. Which supply curve is perfectly elastic?
A. A
B. B
C. C
D. D
Answer:
Enron executives were charged with numerous counts of corporate fraud and
corruption. Among the charges was insider trading, which involves the trading of a
corporation’s stock by insiders who may have access to information that the public does
not. Which role is the government playing when it makes insider trading illegal?
A. Providing for public goods
B. Promoting effective and workable competition
C. Correcting for externalities
D. Adjusting for undesirable market results
Answer:
Government is on the:
A. supply side of factor markets and the demand side of goods markets.
B. demand side of factor markets and the supply side of goods markets.
C. supply side of both factor markets and goods markets.
D. demand side of both factor markets and goods markets.
Answer:
Refer to the graph shown. If the firm is producing 525 units of output, profit is equal to:
A. $38.
B. -$38.
C. $0.
D. $30.
Answer:
Refer to the graph shown. The equation for this market demand curve is:
A. Qd = 1,000 – 20P.
B. Qd = 1,000 – 50P.
C. Qd = 20 – 1,000P.
D. Qd = 50 – 1,000P.
Answer:
For which of the following markets would the fallacy of composition most likely apply?
A. Labor market
B. Orange market in Florida
C. Gasoline market
D. Poultry market
Answer:
A per-unit tax designed to internalize the costs of production imposed on third parties is
called:
A. an excise tax.
B. an effluent fee.
C. a sin tax.
D. a tariff.
Answer:
Which of the following is an example of the law of one price?
A. Exchange rates tend to have equivalent values. For example, one euro equals one
U.S. dollar.
B. Because people have essentially the same basic needs wherever they live, they tend
to buy the same bundle of goods.
C. Because wages are so much lower in China, eventually all U.S. jobs will be
outsourced to China, leaving the United States to import all goods at one price.
D. Because their countries have similar institutions, computer programmers in Germany
and the United States either are or will be paid about the same.
Answer:
Why is the perfect competition model unrealistic?
A. Self-seeking individuals actively seek out ways to limit competition to increase
personal gains.
B. Monopoly is more prevalent in the economy than is perfect competition.
C. Homogeneous products are numerous in the economy.
D. The model assumes that market structures are dynamic.
Answer:
If there is an inverse relationship between two variables, the graph relating the two
variables will be:
A. upward-sloping.
B. downward-sloping.
C. vertical.
D. horizontal.
Answer:
Since consumption of a public good by one person does not preclude consumption by
others, public goods are said to be:
A. nonexclusive.
B. nonrival.
C. exclusive.
D. rival.
Answer:
In a sequential game:
A. the first player always has the advantage.
B. the second player always has the advantage.
C. neither player ever has any advantage.
D. either player could have the advantage depending on the game.
Answer:
The group that benefited the most from international trade has been people who:
A. financed international trade.
B. managed firms.
C. owners of firms.
D. No one has benefited.
Answer:
If an economist argues that advertising is primarily a way of transferring information,
he is most likely a(n):
A. traditional economist.
B. behavioral economist.
C. engineering economist.
D. economic scientist.
Answer: