(Table: Competitive Market for Good Z) Look at the table Competitive Market for
Good Z. If the demand curve for good Z is linear, it can be expressed as:
A) Qd = 3P.
B) Qd = 50 ” 2P.
C) Qd = Qs.
D) Qd = 100 ” 2P.
Peanut butter is an inferior good. If there is an increase in income, total surplus in the
peanut butter market:
A) will increase.
B) will decrease.
C) will not change.
D) may change, but we cannot determine the change without more information.
Which of the following two statements is a positive statement? Which is a normative
statement? I. The federal minimum wage in 2014 was $7.25 an hour. II. The minimum
wage should be high enough that families will not live in poverty.
A) I is positive; II is normative.
B) I is positive; II is positive.
C) I is normative; II is positive.
D) I is normative; II is normative.
_____ is (are) a means-tested monetary benefit in in a welfare program.
A) Food stamps
B) Medicaid
C) Temporary Assistance for Needy Families
D) Unemployment insurance
Which of the following principles underlies the interaction of individual choices?
A) Resources are scarce.
B) There are gains from trade.
C) Marginal analysis is used for “how much” decisions.
D) People usually exploit opportunities to make themselves better off.
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The
price of a book is $5 and the price of a pencil is $0.50. The equation for Adam’s daily
budget constraint can be written as:
A) 5(B) + 0.50(P) £ 20
B) 0.50(B) + 5(P) £ 20
C) 20(B) + 0.50(P) £ 5
D) 0.50(B) + 20(P) £ 5
Figure: Tax Incidence
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the
deadweight loss of an excise tax is likely to be greater in panel _____ than in panel
_____.
A) D; C
B) A; B
C) C; B
D) B; A
A monopoly will have a Herfindahl”Hirschman index equal to:
A) 1.
B) 100.
C) 1,000.
D) 10,000.
Natural monopolies are likely to include all of the following EXCEPT:
A) a diamond mining company.
B) a gas company.
C) an electricity company.
D) railways.
Most neighborhood streets are illuminated at night by streetlights. The streetlights are
_____ and _____. Therefore, they are likely to be _____ by the competitive market.
A) nonrival; nonexcludable; underprovided
B) nonrival; nonexcludable; overprovided
C) rival; excludable; efficiently provided
D) nonrival; excludable; underprovided
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. If
Cindy sells one fewer pumpkin and Diane sells one more pumpkin than in equilibrium,
total surplus will _____ by _____.
A) increase; $16
B) increase; $14
C) decrease; $4
D) decrease; $2
After the first unit sold, the marginal revenue a monopolist receives from selling one
more unit of a good is less than the price of that unit because of:
A) diminishing marginal returns.
B) increasing marginal cost.
C) a downward-sloping demand curve.
D) declining average fixed cost.
An indifference curve typically:
A) slopes downward.
B) shows combinations of two goods that yield equal money income.
C) slopes upward.
D) is concave.
Figure: The Shrimp Market
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government
wants to limit shrimp sales to 500 pounds, it can impose a price:
A) floor of $15.
B) floor of $10.
C) ceiling of $10.
D) floor of $15 or ceiling of $10.
Entry barriers:
A) exist in all market structures.
B) exist in perfect competition and monopolistically competitive markets.
C) do not exist in any market structures; otherwise nothing would be produced.
D) exist in monopoly and oligopoly markets.
(Table: Natasha’s Total Utility) Look at the table Natasha’s Total Utility. Natasha earns
$50,000 per year but faces losing $20,000 of it if she is late with her work. If there is a
25% probability that Natasha will be late with her work and her income will then equal
$30,000, her expected income is:
A) $32,500.
B) $38,200.
C) $40,500.
D) $45,000.
Suppose the equilibrium price of good X is $25 and the equilibrium quantity is 124
units. If the price of good X is $2:
A) there will be excess demand for good X.
B) there will be an excess supply of good X.
C) the market will clear.
D) the quantity demanded of good X will be less than 124 units.
When the profit-maximizing level of output is less than the output associated with the
minimum possible average total cost of production, a firm is said to have:
A) economic profits.
B) excess capacity.
C) advertising.
D) excess production.
(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what is
producer surplus in the long run?
A) $0
B) $4
C) $180
D) $360
The production possibility frontier will shift outward because of:
A) a decrease in the labor force.
B) an upgrade of capital to the best available technology.
C) better technology that improves worker productivity.
D) a decrease in the unemployment rate.
Figure: Efficiency and Pollution
(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. The
socially optimal quantity of pollution is _____ tons.
A) 0
B) 20
C) 30
D) 45
For a firm producing at any level of output GREATER THAN the most profitable one, a
reduction in output decreases total revenue _____ total cost.
A) less than
B) more than
C) by the same amount as
D) but not
If the price is greater than average total cost at the profit-maximizing quantity of output
in the short run, a perfectly competitive firm will:
A) continue to produce at a loss.
B) produce at a profit.
C) shut down production.
D) reduce its fixed costs.
A decrease in supply means:
A) a shift to the left of the entire supply curve.
B) a movement down the supply curve as prices go down.
C) that less will be demanded at every price.
D) that more will be supplied at every price.
Suppose Cyd knows the average total cost of producing 9 scones is $5, while the
average total cost of producing 10 scones is $5.20. What is the marginal cost of the
tenth scone?
A) $7.00
B) $5.20
C) $0.20
D) $5.00
Figure: Income Tax Payments
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel
or panels best represent the effects of a regressive income tax?
A) A
B) B
C) C
D) A and B
When a person makes a quick decision without taking the time to compare the
opportunity cost of all possible options, he or she is using:
A) bounded rationality.
B) risk aversion.
C) loss aversion.
D) the status quo.
The effect of product differentiation is to:
A) start a price war.
B) reduce prices to the noncooperative level.
C) reduce the intensity of competition among the firms in the oligopoly.
D) increase the intensity of competition among the firms in the oligopoly.
Julie is getting ready for final exams. She has three exams during the first three days of
the exam period. To prepare, she has outlined a schedule that includes reviewing for her
first exam on one day, her next exam on the following day, and her third exam on the
third day. On each day, she has also allocated some time when she can watch TV or
basically do nothing. Which best explains why Julie provides some time for leisure?
A) Julie is not that smart and cannot study that long.
B) Julie is slacking off and will most likely fail all of her finals.
C) Julie realizes that there are benefits to leisure time that outweigh the costs of
constant studying.
D) Julie does not understand the importance of studying.