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If a good has a price-inelastic demand, then which of the following is NOT likely to be
characteristic of this good?
A) It is a necessity and is relatively small proportion of the household budget.
B) It has many substitutes.
C) Consumers spend a small percentage of their income on it.
D) Consumers do not have much time to adjust to market changes.
Figure: The Market for Blue Jeans
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify consumer and producer surplus after the tax was levied?
A) a + b + c
B) a + b + c + d + e + f
C) d + e + f
D) a + f
Honduras exports clothing to the United States, and the United States exports
bulldozers to Honduras. Proponents of the Heckscher"Ohlin model would explain this
pattern of trade by stating that:
A) Honduras has an advantage in the technology used in clothing production, while the
United States has an advantage in the technology used in bulldozer production.
B) Honduras's climate is more conducive to producing clothing, while the United
States' climate is more conducive to producing bulldozers.
C) Honduras has a relatively large endowment of factors of production for making
clothing, while the United States has a relatively large endowment of factors of
production for making bulldozers.
D) Honduras has a factor intensity in capital and the United States has a factor intensity
in labor.
A decrease in the price of a good, holding income and the prices of all other goods
constant, is associated with:
A) a positive substitution effect, since consumers increase their consumption of the
good as the marginal utility per dollar of the good increases.
B) a negative substitution effect, since consumers decrease their consumption of the
good as the marginal utility per dollar spent of the good decreases.
C) the consumer purchasing fewer of all goods in the consumption bundle.
D) a shift inward of the budget line.
(Table: Production of Bagels) Look at the table Production of Bagels. The marginal
product of the fifth worker is _____ bagels.
A) 5,000
B) 9,000
C) 10,000
D) 12,000
Figure: Marginal Private Benefits and Marginal Social Benefits
(Figure: Marginal Private Benefits and Marginal Social Benefits) Look at the figure
Marginal Private Benefits and Marginal Social Benefits. If government does intervene
and encourages the market to produce and price at the socially optimal level, what will
be the output and price?
A) Q0; P0
B) Q1; P0
C) Q1; P2
D) Q2; P1
In baseball, when one manager decides to send in a pinch hitter, the other manager often
changes pitchers. This sometimes causes the first manager to send in a new pinch hitter.
Once both managers decide that no more player substitutions will benefit their team, the
situation has reached:
A) efficiency.
B) equilibrium.
C) equity.
D) the market.
When the absolute value of the percentage change in quantity demanded is less than the
absolute value of the percentage change in price, demand is:
A) inelastic.
B) elastic.
C) unit-elastic.
D) unknown.
If at the current amount of pollution, its marginal social benefit is greater than its
marginal social cost:
A) there is too little pollution.
B) there is too much pollution.
C) society is achieving the optimal amount of pollution.
D) the externality is minimized.
(Table: Total Product and Marginal Product) Look at the table Total Product and
Marginal Product. Negative marginal returns begin when the _____ worker is added.
A) fifth
B) sixth
C) seventh
D) eighth
Figure: Indifference Curves and Consumption Bundles
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. The lines AA and BC are parallel. The optimal
consumption point could shift from b to c as a result of any of the following EXCEPT:
A) an equal percentage increase in the prices of hot dogs and pizza while income is
unchanged.
B) a decrease in income with prices constant.
C) a change in tastes.
D) an equal percentage increase in the prices of hot dogs and pizza while income is
unchanged or a decrease in income with prices constant.
Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary
knows the average product of labor is 15 speakers per day. She also believes that the
next worker hired will produce an extra 12 speakers per day. A speaker sells for $10.
Assuming that the market for speakers is perfectly competitive, Mary should hire
another worker:
A) only if the new worker's marginal product is 12 or more.
B) only if the new worker's daily wage is $150 or less.
C) only if the new worker's daily wage is $120 or less.
D) since the marginal product is below the average product.
There is one gas station in a small rural town. The owner of the station claims that he
will sell the same quantity of gas no matter how high or low the price. If he is correct in
this assertion, the demand curve for gas at his station must be _____, with a price
elasticity of _____.
A) vertical; zero
B) vertical; infinity
C) horizontal; zero
D) horizontal; infinity
Figure: Profits in Monopolistic Competition
(Figure: Profits in Monopolistic Competition) In panel (A) of the figure Profits in
Monopolistic Competition, the profit-maximizing quantity of output is determined by
the intersection at point:
A) G.
B) F.
C) H.
D) C.
Monopolistic competition describes an industry characterized by:
A) a product with many close substitutes.
B) a horizontal demand curve.
C) a small number of firms.
D) barriers to entry and exit.
Marginal analysis is relevant for:
A) both "either"or" and "how much" decisions.
B) only "either"or" decisions.
C) only "how much" decisions.
D) only situations involving the time value of money.
The incidence of a tax:
A) is a measure of the revenue the government receives from it.
B) refers to who writes the check to the government.
C) refers to how much of the tax is actually paid by consumers and producers.
D) is a measure of the deadweight loss from the tax.
Price discrimination can occur in all of the following market structures EXCEPT:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
An industry characterized by a few interdependent firms and by barriers to entry is
called:
A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.
The university president believes that increasing student tuition by 5% will increase
revenues. If the president is correct that revenues will increase, then the tuition increase
will _____ the number of students enrolling by _____.
A) reduce; less than 5%
B) reduce; more than 5%
C) reduce; exactly 5%
D) increase; 5%
(Table: Food and Clothing Bundles) Look at the table Food and Clothing Bundles.
Teddy enjoys consuming food and clothing. The table shows five bundles of food and
clothing that all provide Teddy with the same amount of utility. The marginal rate of
substitution of food for clothing as Teddy moves from bundle D to bundle E is equal to:
A) 1.
B) "2.8.
C) "14.
D) "5.
When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and
small popcorn, Matt says, "Oh, I'm indifferent." This means Matt:
A) doesn't want popcorn and soda.
B) thinks both bundles give him the same utility.
C) thinks neither bundle gives him utility.
D) thinks the utility he gained from popcorn and soda exactly equals their cost.
(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 a monopolist, what is producer surplus in the long run?
A) $45
B) $90
C) $180
D) $360
(Table: Demand for Breakfast Cereal) Look at the table Demand for Breakfast Cereal.
Suppose that the marginal cost of producing cereal is zero. A) If General Mills is the
sole producer of breakfast cereal, how many boxes will the firm produce, what price
will be charged, and how much revenue will be earned? B) Now assume that Kellogg
enters the market, and the industry is now a duopoly with two equal-sized firms. If
these firms agree to split the monopoly output equally, how much revenue will each
firm earn under the agreement? C) If General Mills can cheat on this agreement by
producing 50 million more boxes of cereal without punishment, will it? Analyze the
price effect and quantity effect for General Mills of producing 1 million more boxes.
If the price of a good increases by 15% and the quantity demanded falls by 20%,
demand is:
A) price-elastic.
B) price-inelastic.
C) price unit-elastic.
D) normal.
Sadia wants to practice price discrimination in her bakery. Which of the following
techniques should Sadia NOT use?
A) discounts for people who buy a large volume of bread
B) higher prices for people who buy bread on the day it is baked and lower prices for
people who place advance orders
C) an annual fee for customers who want to shop at a discount in her store
D) the same price for all consumers for freshly baked goods
The relative price rule says that at the optimal consumption bundle the marginal rate of
substitution between two goods must be equal to their relative price. This is equivalent
to saying that:
A) the marginal utility per dollar is the same for both goods.
B) the marginal utility of each good consumed must be the same.
C) goods should be consumed in the same ratio as their relative price.
D) the marginal rate of substitution is not equal to the ratio of marginal utilities.
Many hotel chains offer discounts to senior citizens. This is an example of _____ that is
_____ in the United States.
A) market power; illegal
B) single-price monopoly power; legal
C) price discrimination; illegal
D) price discrimination; legal
