Figure 5-2
Figure 5-2 shows a market with a negative externality.
Refer to Figure 5-2. The deadweight loss due to the externality is represented by the
area
A) abc.
B) abf.
C) abd.
D) ade.
Which of the following is an example of a positive externality?
A) banning the sale of candy in elementary schools
B) planting trees along a sidewalk which add beauty and create shade
C) forbidding the use of cell phones in public
D) prohibiting street parking in all residential neighborhoods
The demand curve for a monopoly’s product is
A) the market demand for the product.
B) more elastic than the market demand for the product.
C) more inelastic than the market demand for the product.
D) undefined.
Figure 6-12
Refer to Figure 6-12. Suppose the diagram shows the supply curves for a product in the
short run and in the long run. Which supply curve represents supply in the short run and
which curve represents supply in the long run?
A) SB represents supply in the short run and SA represents supply in the long run.
B) Either SA or SB could represent supply in the short run; in the long run the supply
curve must be a vertical line.
C) Either SA or SB could represent supply in the long run; in the short run the supply
curve must be a horizontal line.
D) SA represents supply in the short run and SB represents supply in the long run.
Why are laws aimed at regulating monopolies called “antitrust” laws?
A) The rise of large firms (e.g., Standard Oil) in the late 1800s in the United States
caused consumers to lose trust in private business.
B) “Trust” was a word in Old English that meant monopoly in the Middle Ages.
Therefore, “antitrust” is a term that means “against monopoly.”
C) In the late 1800s, firms in several industries formed trusts; the firms were
independent but gave voting control to a board of trustees. Antitrust laws were passed to
regulate these trusts.
D) In the late 1800s, firms in several industries formed trusts; they were called “trusts”
because when corporate officials were questioned about their business they would clam
that business was good for the country and that they should trusted.
Figure 2-6
Refer to Figure 2-6. If the economy is currently producing at point D, what is the
opportunity cost of moving to point B?
A) 8 thousand wrenches
B) 23 thousand hammers
C) 30 thousand wrenches
D) 0 hammers
Figure 9-3
Since 1953 the United States has imposed a quota to limit the imports of peanuts.
Figure 9-3 illustrates the impact of the quota.
Refer to Figure 9-3. With a quota in place, what is the quantity consumed in the
domestic market?
A) 10 million pounds
B) 28 million pounds
C) 34 million pounds
D) 40 million pounds
Table 13-2
Eco Energy is a monopolistically competitive producer of a sports beverage called
Power On. Table 13-2 shows the firm’s demand and cost schedules.
Refer to Table 13-2. What is the marginal profit from producing and selling the 5th
case?
A) $275
B) $145
C) $35
D) $20
Figure 15-15
Figure 15-15 shows the cost and demand curves for the Erickson Power Company.
Refer to Figure 15-15. The firm would maximize profit by producing
A) Q1 units.
B) Q2 units.
C) Q3 units.
D) Q4 units.
The Gini coefficient is measured by
A) summing up the cumulative income percentages on the Lorenz curve.
B) summing up the total income earned by the population and dividing by the size of
the population.
C) using the formula: area between perfect inequality and Lorenz curve ÷ area between
the line of perfect equality to the Lorenz curve.
D) using the formula: area between the line of perfect equality and the Lorenz curve ÷
the area under the line of perfect equality.
Economies of scale will create a barrier to entry in an oligopoly industry when
A) a firm’s minimum efficient scale occurs where long-run average total costs are
constant.
B) the typical firm’s long-run average total cost curve reaches a minimum at a level of
output that is a large fraction of total industry sales.
C) the typical firm’s long-run average total cost curve reaches a minimum at a level of
output that is a small fraction of total industry sales.
D) the industry’s four-firm concentration ratio is less than 40 percent.
Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied
increased by 16 percent. Based on this information the price elasticity of supply of
jean-jackets is
A) 625.
B) 6%.
C) 6.
D) 6%.
Figure 17-5
Refer to Figure 17-5 to answer the following questions.
a. What is the equilibrium quantity of firefighters hired, and what is the equilibrium
wage?
b. What is the equilibrium quantity of paralegals hired, and what is the equilibrium
wage?
c. Explain why firefighters might earn a higher weekly wage than paralegals.
d. Suppose that comparable worth legislation is passed, and the government requires
that firefighters and paralegals be paid the same wage, $800 per week. Now how many
firefighters will be hired and how many paralegals will be hired?
Let MP = marginal product, P = output price, and W = wage, then the equation that
represents the condition where a competitive firm would hire another worker is
A) P × MP = W.
B) P × MP < W.
C) P × MP > W.
D) P × W > MP.
Olive oil producers want to sell more olive oil at a higher price. Which of the following
events would have this effect?
A) an increase in the price of olive oil presses
B) a decrease in the cost of transporting olive oil to markets
C) an increase in the price of land used to plant olive trees
D) research finds that consumption of olive oil reduces the risk of heart disease
A recent study by economists at the Federal Reserve Bank of New York estimates that
over the period from 1970 to 2013, the average college graduate earned ________ more
per year than the average person who had only a high school degree.
A) $5,750
B) 13,275
C) $23,500
D) $44,400
Figure 3-4
Refer to Figure 3-4. If the current market price is $15, the market will achieve
equilibrium by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity
demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
Harvey Rabbitt pays for monthly cable TV service. Last week the cable company
informed Harvey that his monthly cable price would go down because the city council
has granted approval for three new cable companies to service his area. How is the
market for cable TV services affected by this?
A) There is an increase in the supply of cable TV service.
B) There is a decrease in the demand for cable TV service.
C) There is a decrease in the quantity of cable TV service supplied.
D) There is a decrease in the supply of cable TV service.
Assuming that the total market size remains constant, a monopolistically competitive
firm earning profits in the short run will find the demand for its product decreasing in
the long run because
A) new entrants into the market are more likely to have cutting edge products.
B) as the firm raises its price in the long run, it will lose some customers to new
entrants in the market.
C) some of its customers have switched to purchasing the products of new entrants in
the market.
D) its costs of production rises.
Which of the following is explained by the law of diminishing marginal utility?
A) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the
marginal utility of her third bottle of Coca-Cola.
B) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the
marginal utility of her third pretzel.
C) The marginal utility of Isabel’s second bottle of Coca-Cola is greater than the
marginal utility of her friend Margie’s third pretzel.
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two
bottles of Coca-Cola.
Long-run cost curves are U-shaped because
A) of the law of demand.
B) of the law of diminishing returns.
C) of economies and diseconomies of scale.
D) of the law of supply.
Logrolling may result in
A) legislation that yields economy-wide benefits, the funding for which is borne
primarily by a few of the smallest states.
B) a majority of Congress supporting legislation that benefits the economic interests of
a few, while harming the economic interests of a much larger group.
C) members of Congress selling their votes on proposed legislation to the highest
bidder.
D) creating limited incentives for policymakers to consider the immediate
consequences of their proposed legislation.
By tying the salaries of top corporate managers to the price of the corporation’s stock,
corporations hope to avoid
A) corporate governance.
B) conflict between the CFO and the CEO.
C) the principal-agent problem.
D) paying high salaries to their managers.
Once the copyright on a book expires,
A) the book is in the public domain, but only the author or the author’s descendants are
allowed to publish the book.
B) the first person to again publish the book is granted renewed copyright protection.
C) the book can no longer be published.
D) anyone is free to publish the book.
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. With rent control, the quantity supplied is 200 apartments.
Suppose apartment owners ignore the law and rent this quantity for the highest rent they
can get. What is the highest rent they can get per month?
A) $1,000
B) $1,500
C) $2,000
D) $2,300
Which of the following are implicit costs for a typical firm?
A) opportunity costs of capital owned and used by the firm
B) the cost of labor hired by the firm
C) utilities cost
D) a business licensing fee
Arbitrage
A) is the act of buying an item at a low price and reselling the item at a higher price.
B) is the act of selling an item on consignment and collecting a huge portion of the
proceeds to compensate for the seller’s time.
C) is the act of buying an item at a low price, bundling it with another and selling the
new package at a much higher price.
D) is any act of buying and selling that results in the seller earning an above normal
profit.
Anything owed by a person or a firm is
A) an asset.
B) a liability.
C) a bond.
D) equity.
The decision to make the U.S. income tax system progressive was
A) a progressive decision.
B) a positive decision.
C) a decision that was needed to minimize the excess burden of taxation.
D) a normative decision.
Pookie’s Pinball Palace restores old Pinball machines. Pookie has just spent $300
purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once
he is finished with the restoration. After having spent $300, Pookie discovers that he
will need to rewire the entire machine at a cost of $1,100 in order to finish the
restoration. Alternatively, he can sell the machine “as is” now for $1,000. What is his
marginal benefit if he sells the machine “as is” now?
A) $300
B) $900
C) $1,000
D) The marginal benefit cannot be determined.
If the social benefit of consuming a good or a service exceeds the private benefit
A) a negative externality exists.
B) the market achieves economic efficiency.
C) a positive externality exists.
D) the sum of consumer surplus and producer surplus is maximized.
Assume there is a shortage in the market for digital music players. Which of the
following statements correctly describes this situation?
A) The demand for digital music players is greater than the supply of digital music
players.
B) Some consumers will be unable to obtain digital music players at the market price
and will have an incentive to offer to buy the product at a higher price.
C) The price of digital music players will rise in response to the shortage; as the price
rises the quantity demanded will increase and the quantity supplied will decrease.
D) The shortage will cause a decrease in the equilibrium price of digital music players.
Economist Kenneth Arrow has shown mathematically that no system of voting will
consistently represent the underlying preferences of voters. This finding is called
A) the Arrow impossibility theorem.
B) Arrow’s median voter model.
C) Arrow’s Amendment to the public choice model.
D) Arrow’s majority vote paradox.
A change in the price of a good has two effects on the quantity consumed. What are
these effects?
A) the income effect and the substitution effect
B) the utility effect and the budget effect
C) the total utility effect and marginal utility effect
D) the consumption effect and expenditure effect
Figure 16-1
Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell
A) Q1 units.
B) Q2 units.
C) Q3 units.
D) Q4 units.