If, for a given output level, a perfectly competitive firm’s price is less than its average
variable cost, the firm
A) is earning a profit.
B) should shut down.
C) should increase output.
D) should increase price.
The government of Silverado raises revenue through a general income tax paid by all its
residents to operate the city’s marina. The marina is used by private boat owners. This
method of raising revenue to operate the marina is
A) consistent with the benefits-received principle.
B) consistent with the ability-to-pay principle.
C) inconsistent with the benefits-received principle.
D) inconsistent with the ability-to-pay principle.
Who was the economist who first analyzed the advantages of specialization and the
division of labor?
A) David Ricardo
B) Arthur C. Pigou
C) Ronald Coase
D) Adam Smith
A supplier of an input is unlikely to have bargaining power if
A) the input supplied is specialized.
B) many firms can supply the input.
C) it is the sole supplier of the input.
D) it has a patent on the input.
Suppose a frost destroys the tomato crop in California but farmers see an increase in
their revenues. Which of the following best explains this?
A) The decrease in supply led to huge price increases.
B) Tomatoes are necessities.
C) The demand for tomatoes is price inelastic.
D) The cross-price elasticity between tomatoes and most other substitute vegetables is
very low.
a. What is the defining characteristic of a natural monopoly?
b. Should the government break up a natural monopoly into two or more firms to make
the industry more competitive?
c. Suppose the government wants to ensure that some of the benefits of declining
average total cost are passed on to consumers. To achieve this goal, it requires that the
natural monopoly set its price equal to marginal cost. Is this a feasible goal? Explain.
d. What is an alternative to marginal cost pricing that ensures that consumers reap some
of the benefits of declining average total cost?
A budget constraint
A) represents the bundles of consumption that make a consumer equally happy.
B) refers to the limited amount of income available to consumers to spend on goods and
services.
C) reflects the desire by consumers to increase their income.
D) shows the prices that a consumer chooses to pay for products he consumes.
Between 1950 and 2015, the number of acres devoted to wheat production in the United
States ________ and the price of wheat ________.
A) declined; decreased
B) more than doubled; increased by about 50 percent
C) declined; more than doubled
D) increased; more than doubled
Marginal cost is calculated for a particular increase in output by
A) multiplying the total cost by the change in output.
B) multiplying the change in total cost by the change in output.
C) dividing the total cost by the change in output.
D) dividing the change in total cost by the change in output.
Which of the following is not a result of government price controls?
A) Some people win and some people lose.
B) Price controls benefit poor consumers but harm producers and wealthy consumers.
C) Price controls decrease economic efficiency.
D) A deadweight loss will occur.
A major problem with using a tradable emission allowances system to control pollution
is
A) that it grants firms a license to pollute.
B) the difficulty in determining the emissions target.
C) it discourages firms from implementing cost-effective pollution control technology.
D) that it does not eliminate pollution completely.
Which of the following is necessary in order for a firm to successfully practice price
discrimination?
A) The firm must practice product differentiation.
B) The demand for the firm’s product is inelastic.
C) The firm must be able to segment the market for the product.
D) The firm’s transactions costs must be zero.
Table 17-3
Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input
and output markets. The firm hires labor at a constant wage rate of $800 per week and
sells microwave ovens at a constant price of $80. Table 17-3 shows the relationship
between the quantity of labor it hires and the quantity of microwave ovens it produces.
Refer to Table 17-3. What is the amount of revenue added as a result of hiring the
fourth worker?
A) $1,200
B) $7,200
C) 15 microwaves
D) 90 microwaves
Assume that both the demand curve and the supply curve for MP3 players shift to the
right but the demand curve shifts more than the supply curve. As a result
A) both the equilibrium price and quantity of MP3 players will increase.
B) the equilibrium price of MP3 players will increase; the equilibrium quantity may
increase or decrease.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium
quantity will increase.
D) the equilibrium price of MP3 players will decrease; the equilibrium quantity may
increase or decrease.
Figure 13-1
Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1
equals
A) the area A.
B) the area (B + D – A).
C) the area (A – D).
D) the area (C – B).
If official poverty statistics for the United States included transfer payments individuals
receive from the government, such as Social Security payments and other non-cash
benefits such as food stamps,
A) the poverty rate would be lower.
B) poverty would be eliminated.
C) income inequality would be greater.
D) the poverty rate would be overstated.
The cross-price elasticity of demand measures the
A) absolute change in the quantity demanded of one good divided by the absolute
change in the price of another good.
B) percentage change in the quantity demanded of one good divided by the percentage
change in the price of another good.
C) percentage change in the price of one good divided by the percentage change in the
quantity demanded of another good.
D) percentage change in the quantity demanded of one good in one location divided by
the price of the same good in another location.
When demand is unit elastic, a change in price causes total revenue to stay the same
because
A) the percentage change in quantity demanded exactly offsets the percentage change in
price.
B) buyers are buying the same quantity.
C) total revenue never changes with price changes.
D) the change in profit is offset by the change in production cost.
Which of the following statements about the prisoner’s dilemma is false?
A) The prisoner’s dilemma in a one-shot game leads to a noncooperative, equilibrium
outcome.
B) The prisoner’s dilemma in repeated games could lead to cooperation especially if
there is some enforcement mechanism that punishes a player who does not cooperate.
C) Players caught in a prisoner’s dilemma act in selfish ways that lead to an equilibrium
that is sub-optimal.
D) The prisoner’s dilemma game can never reach a Nash equilibrium as long as players
do not cooperate.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets
to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed
would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed
would not have sold their tickets for $3,000. These results are evidence of
A) the high value fans place on watching the Super Bowl in person, rather than on
television.
B) the failure of consumers to take into account nonmonetary opportunity costs.
C) the failure of consumers to ignore sunk costs.
D) consumers being overly optimistic about their future behavior.
The horizontal-equity principle of taxation is not easy to use in practice because
A) some people engage in rent seeking to reduce their taxes below the level other
people pay.
B) people can use tax loopholes to reduce their incomes below the incomes of other
taxpayers.
C) different people receive different levels of government benefits even if their incomes
are the same.
D) it is difficult to determine whether people are in the same economic situation.
The typical shape of an isoquant is
A) convex towards the origin.
B) concave towards the origin.
C) linear and downward sloping.
D) linear and upward sloping.
The U.S. Congress has given two government entities the authority to police mergers.
These two entities are
A) the antitrust division of the Department of State and the Securities and Exchange
Commission.
B) the Federal Trade Commission and the Internal Revenue Service.
C) the Antitrust Division of the U.S. Department of Justice and the Council of
Economic Advisors.
D) the Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice.
Suppose Joe is maximizing total utility within his budget constraint. If the price of the
last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the
price of the last shirt purchased is $20, then, using the rule of equal marginal utility per
dollar spent, the extra satisfaction received from the last shirt must be
A) 2,000 units of utility.
B) 500 units of utility.
C) 100 units of utility.
D) 80 units of utility.
Use the following graph to answer the following questions.
a. If the wage rate and the rental price of machines are both $50 and total cost is $800,
is the cost-minimizing point A, B, or C?
b. If the wage rate is $40, the rental price of equipment is $120, and total cost is $1,200,
is the cost-minimizing point A, B, or C?
c. If the wage rate is $60, the rental price of equipment is $90, and total cost is $1,800,
is the cost-minimizing point A, B, or C?
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. If the market price is $2.00, what is the consumer surplus on the
first burrito?
A) $0.50
B) $1.00
C) $2.00
D) $7.50
Between 1970 and 2010, the poverty rate in East Asia declined dramatically from about
60 percent to less than 1 percent, while the poverty rate in Sub-Saharan Africa
decreased from 40 percent to only 24 percent. The main reason for this is that
A) the population growth rate decreased in East Asia and increased in Sub-Saharan
Africa.
B) Governments in East Asia increased transfer payments to poor families over this
period of time. The governments of Sub-Saharan Africa had practically no transfer
payment programs from 1970 to 2010.
C) The countries of East Asia have progressive income tax systems. The countries of
Sub-Saharan Africa all have regressive income tax systems.
D) East Asia experienced higher economic growth than Sub-Saharan Africa.
Which of the following explains why talented major league baseball players command
much higher salaries than neurosurgeons?
A) because the total value of baseball games is much higher than the total value of
neurosurgery
B) because it takes far more skill and training to be a major league baseball player than
to be a neurosurgeon
C) because the supply of talented major league baseball players is relatively low
compared to the supply of neurosurgeons. Therefore, major league baseball players
exert far more market power than neurosurgeons.
D) because the supply of talented major league baseball players is low relative to its
demand compared to the supply of neurosurgeons. Therefore, adding another player
yields far greater marginal benefit than adding another neurosurgeon.
In making decisions about what to consume, a person’s goal is to
A) allocate her limited income among all the products she wishes to buy so that she
receives the highest total utility.
B) buy low-priced goods rather than high-priced goods.
C) maximize her marginal utility from the goods and services she wishes to buy using
her limited income.
D) consume as many necessities as possible and then, if there is money left over, to buy
luxuries.
Which of the following must be present to reach a private solution to an externality
problem?
A) A majority of the parties affected by the externality must agree to a solution.
B) The transactions costs to negotiate a solution must be relatively low.
C) The total number of people, creators of the problem and those affected, must be
relatively large to justify negotiating a solution.
D) The government must approve the solution for it to be a legal solution.
Transactions costs refer to
A) the implicit costs of production.
B) the costs in time and other resources that parties incur in the process of agreeing to
and carrying out an exchange of goods or services.
C) the raw material cost of production.
D) the cost of transporting goods from one destination to another.
Table 2-7
Table 2-7 shows the output per month of two people, Fred and Barney. They can either
devote their time to making pogo sticks or making unicycles.
Refer to Table 2-7. Which of the following statements is true?
A) Fred has a comparative advantage in making both products.
B) Barney has a comparative advantage in making both products.
C) Barney has a comparative advantage in making pogo sticks and Fred in making
unicycles.
D) Barney has a comparative advantage in making unicycles and Fred in making pogo
sticks.
Table 2-8
Table 2-8 shows the number of labor hours required to produce a digital camera and a
pound of wheat in China and South Korea.
Refer to Table 2-8. South Korea has a comparative advantage in the production of
A) wheat.
B) digital cameras.
C) both products.
D) neither product.
Which of the following statements refers to rent seeking?
A) “Laws passed by the federal government often provide benefits for a small number
of individuals. These individuals, in turn, have an incentive to contribute to the
campaigns of politicians who pass these laws.”
B) “The federal government should spend more money on programs that help low
income citizens and less money on national defense.”
C) “The role of the federal government in the U.S. economy grew significantly after the
Great Depression. Government spending and taxes are a much greater proportion of
total income today than they were in 1929.”
D) “There is an opportunity cost whenever the federal government spends tax revenue.
For example, an additional $1 billion spent on national defense means there will be less
revenue for highway construction and maintenance or some other program.”
Which of the following is an example of a nonexcludable product?
A) college education
B) a public library
C) public transportation
D) internet service for your home computer