If a firm can produce a product at a lower average cost than its competitors, it stands a
better chance of earning economic profit.
All else equal, a decrease in the supply of labor will shift the labor supply curve to the
left and decrease the equilibrium wage.
If a firm in a perfectly competitive industry introduces a lower-cost way of producing
an existing product, the firm will be able to earn economic profits in the long run.
One factor which brought on the recession of 2007-2009 was the financial crisis in
2008.
The only type of business that faces limited liability is a corporation.
Monetary policy has a greater impact in an open economy than it does in a closed
economy.
Figure 11-1
Within a country, the impact of wars and revolutions and their subsequent destruction of
capital is reflected in the per-worker production function in the figure above by a
movement from
A) A to B.
B) B to C.
C) B to A.
D) C to A.
A decrease in investment causes the price level to ________ in the short run and
________ in the long run.
A) increase; increase further
B) increase; decrease
C) decrease; decrease further
D) decrease; increase
A decrease in the real interest rate will
A) cause consumers to spend less and save more.
B) most likely increase consumer’s purchases of durable goods.
C) most likely increase the reward to savings.
D) most likely increase the cost of borrowing.
Unlike firms that sell stock in financial markets, which are known as ________ firms,
companies which do not sell stock in financial markets are known as ________ firms.
A) public; private
B) open; closed
C) corporate; proprietary
D) stock market; bond market
The median voter theorem will be an accurate predicator of the outcomes of elections
A) only when voter turnout is very high.
B) when a majority of voters have preferences very similar to those of the median voter.
C) when a majority of voters have preferences different from those of the median voter.
D) regardless of whether preferences among voters are similar or different from those
of the median voter.
Figure 17-7
Consider the Phillips curves depicted in the graph above. The Fed announces its
intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If
expectations of inflation are not altered by the Fed’s announcement, the rate of
unemployment will be ________ in the short run.
A) less than 5.5 percent
B) 5.5 percent
C) between 5.5 and 7.5 percent
D) 7.5 percent
Table 17-5
Oil Can Harry’s, a new automobile service shop, is ready to start hiring. The table above
shows the relationship between the number of mechanics the firm hires and the quantity
of oil changes it produces.
a. Suppose the price of an oil change is $20. Complete the table by filling in the values
for marginal product and marginal revenue product.
b. Oil Can Harry’s is an input price-taker. Suppose the wage paid to mechanics is $80
per day. What is the profit-maximizing number of mechanics?
c. Suppose the wage rate rises to $100 per day.
(i) What happens to the firm’s demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?
d. Suppose the wage rate is $60 per day and the price of haircuts is now $15.
(i) What happens to the firm’s demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?
As the tax wedge associated with a given economic activity gets smaller, we would
expect
A) more of that economic activity to occur.
B) the distortions caused by taxes on that activity to be greater.
C) people to engage in less of that particular activity.
D) no change in the practice of that activity until the tax wedge ultimately disappears.
Companies in the sharing economy have the potential to lower the equilibrium price in
their market, and by doing so increase efficiency. This would have a tendency to
A) increase producer surplus and increase deadweight loss.
B) increase consumer surplus and decrease deadweight loss.
C) decrease consumer surplus and decrease producer surplus.
D) maximize consumer surplus and minimize producer surplus.
The marginal product of labor is
A) the payment made to workers for their contribution to the output they produce.
B) equal to the demand for labor.
C) the change in a firm’s revenue as a result of hiring one more worker.
D) the additional output a firm produces as a result of hiring one more worker.
A service station owner in Staten Island, New York, was worried that raising the price
of gasoline would cause the quantity demanded to fall by so much that he would be in a
worse situation than if he did not raise the price. If raising the price of gasoline would
cause the owner to receive less total revenue from the sale of gasoline, the demand for
gasoline is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
Figure 4-3 Figure 4-3 shows Kendra’s
demand curve for ice-cream cones.
If the market price is $2.50, what is the consumer surplus on the first ice cream cone?
A) $0.50
B) $1.00
C) $3.50
D) $9.00
Jill Borts believes that the price elasticity of demand for her economics textbook is
relatively inelastic. She argues “I was told I had to purchase a book written by Hubbard
and O’Brien that is required by my instructor. If I wanted to buy a mystery novel I
would have many authors to choose from. Therefore, the demand for mystery novels is
more elastic than the demand for my textbook.” Is Jill correct?
A) The demand for the textbook is more inelastic, but Jill’s reasoning is incorrect. The
reason the textbook has an inelastic demand is that it is more expensive than any novel.
B) She is correct.
C) She is confused. She should have concluded that the textbook has a more elastic
demand than a novel.
D) She is correct that the textbook has a more inelastic demand, but that is because
most students pay for their textbooks with credit or debit cards. Most people pay for
novels and other books with cash or by check.
As a business type, corporations ________ in the United States.
A) earn the majority of profits
B) are the most common
C) are the least common
D) are subject to the least amount of taxes
Which of the following statements regarding equilibrium in the markets for capital and
for a natural resource used in producing a good is true?
A) The marginal revenue product of capital will equal the marginal revenue product of
the natural resource.
B) The rental price of capital will equal the price of the natural resource.
C) The marginal product of capital will equal the rental price of capital and the marginal
product of the natural resource will equal the price of the natural resource.
D) The marginal revenue product of capital will equal the rental price of capital, and the
marginal revenue product of the natural resource will equal the price of the natural
resource.
In February, market analysts predict that the price of titanium will rise in March. What
happens in the titanium market in February, holding everything else constant?
A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied of titanium increase.
D) The demand curve shifts to the left.
Which of the following statements is true?
A) The average product of labor is at its maximum when the average product of labor
equals the marginal product of labor.
B) The average product of labor is at its minimum when the average product of labor
equals the marginal product of labor.
C) The average product of labor tells us how much output changes as the quantity of
workers hired changes.
D) Whenever the marginal product of labor is greater than the average product of labor
the average product of labor must be decreasing.
If the absolute value of the price elasticity of demand for DVD movies is 0.8 then the
elasticity of demand for the DVD for the movie The Hangover should be
A) less then 0.8 in absolute value.
B) greater than 0.8 in absolute value.
C) equal to 1 in absolute value.
D) equal to zero because the DVD of this movie has been out for several years.
Use the general relationship between marginal and average values to explain why a
marginal cost curve must intersect an average total cost curve and an average variable
cost curve at their minimum points.
In the Taylor rule, does the target for the federal funds rate respond differently for a
recession caused by a decrease in aggregate demand and for a recession caused by a
decrease in short-run aggregate supply? Explain whether there is or is not a difference
in how the target for the federal funds rate changes.
What is technology and what factors does it depend on?
If pilots and flight attendants agree to wage and benefit reductions in the wake of the
financial XOAiculties in the airline industry, what impact would this have on the supply
and demand in the market for airline service, assuming no other changes take place in
this market?
What is the difference between zero accounting profit and zero economic profit?