In which of the following examples cited in the text is there the least amount of
evidence of the potential for input substitution?
A) Automobile production.
B) Pipe organ production.
C) French fry production.
D) Production of health care services.
The use of surveys of experts to estimate long-run production costs may be undermined
by the fact that:
A) it is a time-consuming process.
B) it is dependent on the judgments of individuals closely connected with the industry.
C) reporting biases can occur.
D) all of the above.
The money multiplier is computed as follows:
A) (c + 1)/(c + rr + e).
B) (c + 1)/(c + rr).
C) 1/rr.
D) (c + 1)/(c + e).
Assume that as the firms in a perfectly competitive industry expand output, the prices of
productive inputs increase. All else constant, this would cause the individual firms’
marginal cost curves to ________ and the market supply curve to become ________.
A) shift down; flatter
B) shift down; steeper
C) shift up; flatter
D) shift up; steeper
As described in the text, which of the following statements best describes the strategy
of many potato growers since 2005?
A) Growers have worked together to reduce supply and stabilize demand. As a result,
equilibrium price has been propped up and allowed farmers to earn what they consider
a decent profit.
B) Growers have continued to compete vigorously with each other, causing prices and
profits to decrease.
C) Growers have restricted supply so much that there is now a severe shortage of
potatoes in the United States.
D) because efforts by potato growers to restrict supply are illegal in the United States,
they have focused exclusively on increasing demand to increase their profits.
So long as a firm is enjoying increasing marginal returns, a one unit increase in output
will cause marginal costs to ________ and total costs to ________.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
The average product of a variable input is calculated as:
A) total product divided by total output.
B) the change in total product divided by the change in the variable input.
C) total product divided by the change in the variable input.
D) total product divided by the total quantity of the variable input.
The falling phase of a business cycle measured by a decrease in real GDP is called:
A) hyperinflation.
B) expansion.
C) recession.
D) peak.
Which of the following is not an example of a practice that facilitates “tacit collusion”?
A) Uniform prices charged by the firms in a particular industry.
B) Advance notice of price changes by one or more of the firms in an industry.
C) The use of most-favored-customer clauses.
D) The formation of a cartel.
Assume that after the fifth worker, each additional worker a firm hires is less productive
than the previous worker. Based on this information, we can conclude that beyond the
fifth worker, the average product of labor will:
A) increase.
B) stay the same.
C) decrease.
D) cannot be determined without additional information.
You have the following demand equation for a pack of cigarettes: Q = 200 – 0.30P with
the average quantity 3 packs and average price $3.00 per pack. What is the price
elasticity?
A) 0.30
B) -0.30
C) 1.0
D) -1.0
Assume an analyst has been hired to estimate the price elasticity of demand for Levi’s
brand blue jeans and for blue jeans in general. Ceteris paribus, we would expect the
price elasticity of demand in absolute value to be:
A) larger for Levi’s brand blue jeans than for blue jeans in general.
B) larger for blue jeans in general than for Levi’s brand blue jeans.
C) approximately the same for both Levi’s brand blue jeans and blue jeans in general.
D) none of the above because the market for blue jeans cannot be analyzed using the
model of supply and demand.
Which of the following statements regarding a monopolist is false?
A) The marginal revenue curve lies below the demand curve for the monopolist’s
output.
B) Unlike a perfectly competitive firm, a monopolist faces little or no competition.
C) The monopolist sets price equal to marginal cost to maximize profits.
D) The monopolist may or may not earn positive economic profits.
GDP can increase from one year to the next by:
A) increases in prices while quantities of goods and services are constant.
B) increases in the quantities of goods and services produced while prices remain
constant.
C) both prices and quantities of goods and services increase.
D) all of the above.
Measuring expenditures and income with the price level held constant, so that any
changes in these values represent changes in the actual amount of goods, services, and
income is denoted in ________ terms.
A) nominal
B) real
C) constant dollar
D) all of the above
You have the following information on personal consumption expenditures (C) and
disposable income (Yd):
Year C Yd
1 300 400
2 500 700
a. Compute the marginal propensity to consume.
b. Compute the amount of savings for years 1 and 2.
c. Compute the marginal propensity to save.
In an open economy firms sell goods and services to:
A) households, government, and foreigners.
B) just households.
C) just the government.
D) none of the above.
An income tax system where higher tax rates are applied to increased amounts of
income is called a:
A) regressive tax system.
B) proportional tax system.
C) progressive tax system.
D) flat tax system.
Assets which include foreign currencies and gold certificates that central banks use to
maintain exchange rates in a predetermined range are called:
A) reserve assets.
B) tangible assets.
C) bank assets.
D) discretionary assets.
The price elasticity of demand is calculated as:
A) the change in price divided by the change in quantity demanded.
B) the change in quantity demanded divided by the change in price.
C) the percentage change in price divided by the percentage change in quantity
demanded.
D) the percentage change in quantity demanded divided by the percentage change in
price.
The difference between the total willingness to pay for a good and the amount actually
spent measures:
A) the total benefits from consuming the good.
B) the net gain from the production and consumption of the good.
C) the amount by which producers are better off, i.e., producers’ surplus.
D) the amount by which consumers are better off, i.e., consumers’ surplus.
To cut costs in the face of declining demand and increased competition, many fast food
restaurants have focused on reducing:
A) labor costs.
B) utility costs.
C) paper napkin costs.
D) none of the above.
Which of the following statements is correct?
A) In the case of a linear demand curve, the slope and the price elasticity of demand are
equal at each point on the demand curve.
B) The slope of the demand curve is some constant value, but the value of the price
elasticity coefficient decreases as we move down the demand curve.
C) The slope of the demand curve is some constant value, but the value of the price
elasticity coefficient increases as we move down the demand curve.
D) There is no connection between the slope of the demand curve and the value of the
price elasticity coefficient.
Which of the following measures is used by the Justice Department to evaluate the
competitive effects of proposed mergers?
A) The Lerner Index.
B) The eight-firm concentration ratio for an industry.
C) The four-firm concentration ratio for an industry.
D) The Herfindahl-Hirschman Index.
The text lists all of the following as outcomes of McDonald’s experimental adoption of
remote order taking except:
A) a decrease in accuracy in filling orders.
B) increased speed at the drive through window.
C) an increase in the costs associated with the drive-through portion of McDonald’s
business.
D) employee dissatisfaction with constant monitoring and the stress of the process.
Assume that the U.S. dollar depreciates against the Japanese yen. What is the impact on
aggregate expenditures and income?
A) Both increase.
B) Both decrease.
C) Aggregate expenditure increases and income decreases.
D) Aggregate expenditure decreases and income increases.
Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value). This
means that if price decreases by 50 percent, quantity demanded will:
A) increase by more than 50 percent.
B) decrease by more than 50 percent.
C) increase by less than 50 percent.
D) decrease by less than 50 percent.
Which of the following statements is correct?
A) Evidence strongly suggests that legislatively mandated input combinations have
greatly reduced production costs in many industries.
B) Legislating input combinations in a particular industry can bias the decision making
of the firm’s managers and lead to higher-than-necessary costs of production.
C) Legislating input combinations in a particular industry has little or no effect on the
decision making of the firm’s managers.
D) Legislating input combinations in a particular industry is preferred to relying on
market forces to determine the cost-minimizing combination of inputs to a production
process.
Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of
the 300th unit is $11, marginal cost of the 300th unit = $10, and AVC of the 300th unit =
$9. Based on this information, the firm is:
A) earning an economic profit of $300.
B) earning an economic profit of $600.
C) incurring a loss of $300 and should shut down.
D) incurring a loss of $300, but should continue to operate in the short run.
The slope of the budget constraint:
A) changes as the marginal rate of substitution changes.
B) is the ratio of the prices of the two goods.
C) is the ratio of the budget to total utility.
D) equals one, since the consumer can purchase any combination along the budget
constraint.
Which of the following conditions ensures that excess profits cannot persist in a
perfectly competitive market over the long run?
A) Large number of firms in the industry.
B) Outputs of the firms are perfect substitutes for one another.
C) Complete information is available to all market participants.
D) Ease of entry into the market.
All of the following are non-price factors that influence demand except:
A) tastes and preferences.
B) quantity supplied.
C) income.
D) the prices of related goods.
Assume there is a decrease in the market demand for a good sold by price-taking firms
that are initially producing the profit-maximizing level of output. For the individual
firm, this would result in:
A) a decrease in both price and the profit-maximizing quantity of output.
B) a decrease in price and increase in the profit-maximizing quantity of output.
C) an increase in both price and the profit-maximizing quantity of output.
D) an increase in price and decrease in the profit-maximizing quantity of output.
Which of following is not a condition that must be met for a cartel to maximize its joint
profits?
A) Total output by the cartel must be allocated among the member firms such that the
individual firm’s marginal costs are equal.
B) The cartel must produce the level of output at which its marginal revenues and
marginal costs are equal.
C) The cartel must be operating in the inelastic portion of its demand curve.
D) Each member firm must employ the least-cost method of production.
Why is the prisoner’s dilemma game useful in studying oligopoly behavior?
A) Because oligopolies make out like bandits.
B) To illustrate the problems encountered when making decisions under uncertainty.
C) To show that oligopolies behave as monopolists in the long run and earn positive
economic profits.
D) To illustrate how barriers to entry lead to economic profits.