Figure 20.2
Refer to Figure 20.2. ________ has a comparative advantage in producing ________.
A) England; trucks
B) England; cars and trucks
C) the United States; trucks
D) the United States; cars and trucks
In the short run, it is necessary to ________ a good whenever excess demand exists.
A) nonprice ration
B) price allocate
C) discontinue distribution of
D) increase production of
Below are cost curves for Dom’s Barber Shop, a monopolistically competitive firm.
Figure 15.1
Refer to Figure 15.1. If Dom’s Barber Shop is maximizing profit, its total costs are
A) $200.
B) $240.
C) $350.
D) $360.
There are 500 families in a neighborhood that are affected by air pollution from a local
factory. The pollution is within legal limits, but could be reduced further if the company
spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if
the affected families contribute the $10,000. A committee starts to collect donations to
pay for the ventilators. Which of the following is most likely to occur?
A) Because there are relatively few families involved and the individual contribution is
so small, all families will voluntarily contribute.
B) Because each individual contribution is so small and individuals will benefit from
the reduction in air pollution whether they contribute or not, most people will not
contribute and the firm will not upgrade the ventilators.
C) Even if the families raise $10,000, the firm will not reduce its air pollution since it is
within legal limits.
D) The courts will force the firm to spend the $10,000 regardless of whether or not the
families contribute the money.
In a command economy, ________ establishes what will be produced and when, sets
production goals, and makes rules for distribution.
A) individuals and households
B) only privately owned firms
C) a centralized authority
D) individuals, households and privately owned firms
The major distinguishing characteristic of oligopoly is that
A) firms produce differentiated products.
B) firms can influence the price of their product.
C) entry into the industry easy.
D) firms are interdependent.
Assuming that charitable giving is a normal good, the income effect of an increase in
personal tax rates would lead to
A) less giving because households would have less disposable income.
B) more giving because giving to charity would become less expensive relative to other
goods.
C) more giving because households would have more disposable income.
D) less giving because households would spend that money on luxury goods.
An economist wants to understand the relationship between minimum wages and the
level of teenage unemployment. The economist collects data on the values of the
minimum wage and the levels of teenage unemployment over time. The economist
concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage
unemployment. From this information he concludes that the minimum wage is harmful
to teenagers and should be reduced or eliminated to increase employment among
teenagers.
The statement, “the minimum wage is harmful to teenagers and should be reduced or
eliminated to increase employment among teenagers,” is an example of
A) marginal economics.
B) normative economics.
C) positive economics.
D) the fallacy of composition.
If P > ATC, then a profit maximizing, monopolistically competitive firm earns
________ economic profits.
A) positive
B) negative
C) zero
D) either positive or negative
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price
elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales
will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase
Preferences have just shifted away from beef and into mutton. If you are a sheep
rancher, the best profit-maximizing strategy is to
A) shut down.
B) produce as much as possible to earn profits in the short run.
C) shift some of your ranching capacity into cattle raising.
D) cut prices to increase market share.
The slope of a straight line
A) is always positive.
B) must first increase then decrease.
C) is not constant.
D) is constant.
Figure 6.5
Refer to Figure 6.5. Molly’s budget constraint is EF. If her income decreases and the
price of CDs increases, her new budget constraint could be
A) CD.
B) BD.
C) AD.
D) Both B or C are correct.
Figure 4.4
Refer to Figure 4.4. Assume that initially there is free trade. If the United States allowed
drilling for more oil in the Gulf of Mexico, it could
A) reduce U.S. oil imports without a tax.
B) decrease the demand for domestic oil.
C) reduce the supply of domestic oil.
D) increase the domestic price of oil.
Opportunity cost is
A) that which we forgo, or give up, when we make a choice or a decision.
B) a cost that cannot be avoided, regardless of what is done in the future.
C) the additional cost of producing an additional unit of output.
D) the additional cost of buying an additional unit of a product.
Table 11.1
Refer to Table 11.1. If the interest rate is 14%, Nashbar Bicycle should
A) fund all of the projects.
B) fund the remodeling of the distribution center and the on-site day care center.
C) fund only the purchase of new computers for its sales staff.
D) not fund any of the projects.
A monopolistically competitive firm minimizes its losses by producing where MR =
MC as long as ________.
A) P > AVC
B) P > ATC
C) P > MR
D) P > AFC
If all individuals have identical utility functions and the marginal utility of income
decreases as income increases, transferring income ________ will ________ total
utility.
A) from the rich to the poor; increase
B) from the rich to the poor; decrease
C) from the rich to the poor; not change
D) from the poor to the rich; not change
In the distribution of world income, the poorest one-fifth of the world’s population earns
about ________ of the world income.
A) 5%
B) 2%
C) 5%
D) 12%
The Celler-Kefauver Act ________ the government’s authority to ________ vertical
and conglomerate mergers.
A) limited; ban
B) limited; allow
C) extended; ban
D) extended; allow
Figure 5.1
Refer to Figure 5.1. The demand for tickets is
A) perfectly price inelastic.
B) perfectly price elastic.
C) unit price elastic.
D) perfectly income inelastic.
Relating to the Economics in Practice on page 257: Ethanol is a fuel produced from
corn, and ethanol subsidies have increased the supply of corn. As a result, demand for
farm land has ________. Further, the supply of other grains has ________.
A) increased; increased
B) decreased; decreased
C) increased; decreased
D) decreased; increased
Table 20.1
Refer to Table 20.1. In Germany, the opportunity cost of 1 case of wine is
A) 1/2 case of beer.
B) 1 case of beer.
C) 2 cases of beer.
D) 5 cases of beer.
The amount that households have accumulated out of past income through saving and
inheritance is
A) future income.
B) wealth.
C) consumption.
D) past income.
Given scarce resources, how societies go about deciding what to produce, how to
produce it and for whom to produce best describes
A) decreasing opportunity costs.
B) the fallacy of composition.
C) Ockham’s razor.
D) the economic problem.
Over time, the general movement in the United States has been toward ________ free
trade.
A) complete
B) relatively less
C) relatively more
D) no
If capital and labor are complementary inputs and the firm decreases the amount of
capital employed in production, the marginal revenue product of labor will
A) decrease.
B) increase.
C) remain constant because the amount of labor was not changed.
D) either increase, decrease or remain constant depending on how complementary labor
and capital are in production.
In contestable markets, large oligopolistic firms end up behaving like
A) monopolistically competitive firms.
B) a monopoly.
C) perfectly competitive firms.
D) a cartel.
Of the administrative costs for the Food Stamp program,
A) states pay 100 percent.
B) 100 percent are paid out of federal tax revenues.
C) states bear 50 percent of the costs.
D) federal, state, and local governments split the costs evenly.
The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs
from $2.00 to $1.50, he will increase sales from 400 to 500 hot dogs per day. Using the
midpoint formula, the demand for hot dogs is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
In 2006, per capita income was roughly ________ times higher in high-income
countries than in low-income countries.
A) 12
B) 31
C) 56
D) 181
Amy borrowed $20,000 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 $9,000.
Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of
$1.50 per dozen.
Amy’s total fixed costs equal
A) $1,000.
B) $9,000.
C) $10,000.
D) $21,000.
SCENARIO 2: Consider the following payoff matrix for a collusive agreement between
firms owned by Bob and Donna. Each participant has the option of following the terms
of the agreement or cheating on the terms of the agreement, but neither knows what the
other will do.
What is the dominant strategy for Bob? Donna? Which strategy should each player
choose to maximize the potential gain? What do you think the outcome of this game
will be? Carefully explain your answers.
Table 8.1
Refer to Table 8.1. In the short run, if the price of labor (L) is $5 per unit, the price of
capital (K) is $10 per unit, and firms attempt to minimize costs, then this firm’s total
cost of producing one unit of output is
A) $100.
B) $120.
C) $220.
D) indeterminate from this information.
Assume that an economy producing two products, skateboards and inline skates, is
initially in equilibrium, and that skateboards and inline skates are substitutes. If
consumer preferences shift away from skateboards and toward inline skates, which of
the following will NOT occur?
A) In the short run, firms producing skateboards will incur losses.
B) In the short run, firms producing inline skates will earn a profit.
C) Additional capital will begin to flow into inline skates production in the long run.
D) Additional capital will begin to flow into skateboard production in the long run.