Suppose that a market for a product is in equilibrium at a price of $3 per unit. At any
price below $3 per unit:
A) there will be an excess demand for the product.
B) there will be an excess supply of the product.
C) the quantity demanded of the product will be less than the quantity supplied of that
product.
D) there will be a surplus of that product.
If real salaries increase but nominal salaries do not, this means that:
A) the purchasing power of money has decreased.
B) prices have not changed.
C) prices have risen.
D) prices have fallen.
Monopolistically competitive firms can use advertising:
A) to lower economies of scale.
B) to collude against other firms.
C) to inform consumers about the features of their products.
D) to increase the price charged for their products.
Recall the Application about the British experience with private water companies
in the nineteenth century to answer the following question(s).
Recall the Application. The British Experience with water privatization showed that the
distribution of water is:
A) a natural monopoly.
B) best left as a deregulated market.
C) best set up as a trust.
D) a classic example of price fixing.
If the government were to limit the release of air pollution produced by a chemical
company to 20,000 units, this policy would be considered a:
A) command-and-control policy.
B) subsidy.
C) market-based solution.
D) tax.
Average total cost is defined as:
A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) total cost divided by quantity.
Table 8.4 presents the cost schedule for David’s Figs. If David produces two figs,
David’s marginal costs are:
Table 8.4
A) $80.
B) $90.
C) $100.
D) $170.
In the long run, after Hurricane Andrew struck the southeastern U.S., the price of ice:
A) rose.
B) did not change.
C) fell.
D) became negative.
When Staples and Office Depot attempted to merge in 1997:
A) the Federal Trade Commission convinced the courts to block the merger on the
grounds that the merger would lead to less competition in the office supplies industry.
B) it was determined that Office Depot and Staples were not substitutes for each other.
C) the Federal Trade Commission believed that the merger would increase the
competitiveness of the office supplies industry.
D) evidence showed that the merger would lead to lower prices on office supplies.
Which of the following is an example of an indivisible input?
A) the amount of labor a firm hires
B) flour used to produce bread
C) wood used to produce paper
D) train tracks between two cities
Which of the following is a barrier to entry for a monopoly?
A) government licensing
B) patents
C) network externalities
D) all of the above
________ occurs when a firm cuts prices below production costs in a deliberate attempt
to drive competitors out of business.
A) Voracious dumping
B) Ravaging dumping
C) Predatory dumping
D) Deliberate dumping
If the equilibrium price of a good decreases and the equilibrium quantity of the good
decreases, we can conclude that:
A) demand increased.
B) demand decreased.
C) supply increased.
D) supply decreased.
Another name for a system of marketable permits is ________.
A) cap-and-trade
B) command and control
C) the Environmental Protection Agency
D) the carbon tax
Suppose that in 2011, 3 million plasma TVs were purchased at $950 each, while in
2012, 4 million plasma TVs were purchased at $800 each. What might have caused this
change?
A) The price of LCD TVs (a substitute for plasma TVs) fell.
B) The price of LCD TVs (a substitute for plasma TVs) rose.
C) There was an advance in plasma TV manufacturing technology.
D) There were fewer workers in plasma TV manufacturing.
As compared to a perfectly competitive firm, a monopolistically competitive firm will:
A) have less control over price.
B) face more barriers to entry.
C) face more competitors.
D) sell a more differentiated product.
Figure 4.3 illustrates the demand for tacos. Assume that tacos and burritos are
substitutes. A decrease in the price of burritos would bring about a movement from:
A) point a to point c.
B) point c to point b.
C) D2 to D0.
D) D1 to D2.
Which of the following statements is INCORRECT?
A) The price elasticity of demand tends to be greater for a specific brand of a product
than for a product in general.
B) The price elasticity of demand tends to be smaller when consumers have less time to
adjust to price changes.
C) The price elasticity of demand tends to be greater when a product accounts for a
smaller portion of the consumer’s budget.
D) The price elasticity of demand tends to be greater for a product with more substitutes
available.
Refer to Table 17.1. If the price of output is $10 per unit, the marginal revenue product
of the third unit of labor is:
Table 17.1
A) $50.
B) $60.
C) $500.
D) $600.
Recall the Application about the decrease in the price of wool in the 1990s to
answer the following question(s). In the 1990s, the world price of wool decreased
by about 30 percent and prices have remained relatively low since then. In 2012,
an organization in New Zealand proposed that sheep shearing be added to the
Commonwealth Games and the Olympics as a spectator sport in an effort to
increase the awareness and the demand for wool.
Recall the Application. If the organization in New Zealand was successful in getting the
Olympics to include sheep shearing as a spectator sport, and this helped to raise the
world price of wool, the quantity of wool supplied would ________ because the market
supply curve for wool is ________ sloped.
A) increase; positively
B) increase; negatively
C) decrease; positively
D) decrease; negatively
Using figures from the Application, $5000 (which is the market alue of all your
equipment) is the:
A) invested capital.
B) opportunity cost of the invested capital.
C) the opportunity cost of running the business.
D) opportunity cost of your time.
Suppose that a state installs a toll booth on a highway and requires drivers to pay $1.00
before entering the highway. Installation of the toll booth changes:
A) a nonexcludable good into an excludable good.
B) a nonrival good into a rival good.
C) public good into a private good.
D) a nonrival good into a nonexcludable good.
From the Application, the opportunity cost of your invested capital is:
A) the interest you could get if you invested in in a bond.
B) zero.
C) the revenue you could get once the capital is used.
D) the sum of the value of all your equipment.
Table 14.3 represents 3 markets for used stereos. Which of the markets in Table 14.3 are
in equilibrium?
Table 14.3
A) 1 only
B) 2 only
C) 3 only
D) none of the above
If the demand for orange juice is elastic, then as the price falls, quantity demanded for
orange juice will ________ and total revenue for orange suppliers will ________.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; decrease
A solution to market failure in the particular application of environmental policy:
A) can be the establishment of a new market where one had not existed before.
B) can never be market-based, as market failure implies that markets damage the
environment.
C) can never involve the government because the government initially created the
market failure.
D) is impossible because firms and consumers follow their self-interest.
Refer to Figure 9.5. If this farmer is maximizing profits, his total costs will be:
A) $11.
B) $66.
C) $90.
D) $132.
In the case of perfectly elastic supply, the supply curve is:
A) upward sloping.
B) downward sloping.
C) vertical.
D) horizontal.
Suppose that in the time it takes for him to bake a cake, Bob can sew 5 pairs of jeans. In
the time it takes for Joe to bake a cake, he can sew 8 pairs of jeans day. In this example,
Bob has ________ advantage over Joe in cake baking.
A) an absolute
B) an absolute and a comparative
C) a comparative
D) neither an absolute nor a comparative
If your firm is producing a good at a level where marginal revenue equals marginal
cost, and price is between average variable cost and average total cost, then in the short
run your firm should:
A) shut down and suffer a loss equal to your fixed costs.
B) continue to produce, but increase output.
C) continue to produce at the same level of output.
D) continue to produce, but decrease output.
One factor which was responsible for roughly one-fifth of hybrid vehicles purchased in
2007 was a federal subsidy of up to $3,400 per hybrid vehicle. One factor which was
responsible for roughly one-third of hybrid vehicles purchased in 2007 was an increase
in the price of gasoline. The increase in sales due to higher gasoline prices describe the
economic concept of:
A) using assumptions to simplify.
B) ceteris paribus.
C) marginal thinking.
D) rational self-interest.