A cartel is an example of:
A) price extortion.
B) price leadership.
C) overt collusion.
D) perfect competition.
If they spend all night writing computer programs, Laurence can write 10 programs,
and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can
make 6 pairs, and Carrie Anne can make 4. We know that _____ has a comparative
advantage in _____.
A) Laurence; programs
B) Laurence; both programs and sunglasses
C) Carrie Anne; programs
D) Carrie Anne; both programs and sunglasses
Suppose the government sets a price floor below the current price of a good. This price
floor will:
A) result in an excess supply of the good.
B) result in an excess demand for the good.
C) have no effect on the price of the good.
D) increase the quantity supplied of the good.
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At
the equilibrium price and quantity, Ben buys _____ pumpkins, and his consumer
surplus is_____.
A) four; $2
B) three; $6
C) two; $4
D) one; $3
An attorney supplies 40 hours of work per week when her fee is $100 per hour but
supplies 60 hours of work per week when her fee rises to $120 per hour. Using the
midpoint formula, her elasticity of supply is equal to:
A) 1.
B) 0.8.
C) 2.2.
D) 0.45.
Activities that generate external costs will likely be carried out at levels that _____
those that would be efficient.
A) are equal to
B) are less than
C) exceed
D) compete with
You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it.
According to marginal analysis, you should:
A) go home.
B) buy another ticket and attend the movie.
C) buy another ticket and attend the movie only if your marginal benefit of seeing the
movie is more than $14.
D) look for the lost ticket.
An important determinant of the price elasticity of demand is the:
A) price of related goods.
B) level of technology.
C) availability of substitutes.
D) quantity of the good supplied.
If a perfectly competitive firm is producing a quantity where MC < MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.
Zoe’s Bakery operates in a perfectly competitive industry and has standard cost curves.
The variable costs at Zoe’s Bakery increase, so all of the cost curves (except fixed cost)
shift upward. The demand for Zoe’s pastries does not change, nor does the firm shut
down. To maximize profits after the variable cost increase, Zoe’s Bakery will _____ its
price and _____ its level of production.
A) raise; increase
B) decrease; increase
C) raise; decrease
D) do nothing to; decrease
In the long run:
A) all inputs are fixed.
B) inputs are neither variable nor fixed.
C) at least one input is variable and one input is fixed.
D) all inputs are variable.
Figure: The Restaurant Market
(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing
a typical restaurant. Assume that many firms, differentiated products, and easy entry
and exit characterize the restaurant industry. The restaurant shown here will maximize
profits at quantity:
A) Q1.
B) Q2.
C) Q3.
D) Not enough information is given to answer the question.
(Table: Firm’s Willingness) The table Firm’s Willingness explains the relation between
the number of reports a firm is willing to produce and the lowest price it is willing to
accept to prepare those reports. If the price of a report is $6, how many reports will be
produced?
A) five
B) four
C) three
D) two
Figure: The Market for Roses
(Figure: The Market for Roses) Look at the figure The Market for Roses. Assume that
PA is the autarky price and PW is the world price. Consumer surplus without
international trade would be area:
A) W + X + Y.
B) Z.
C) W + X + Z.
D) W.
The slope of the total revenue curve is:
A) marginal cost.
B) net revenue.
C) equal to marginal revenue and is constant under perfect competition.
D) equal to marginal revenue and varies under perfect competition.
The opportunity cost of something is:
A) greater during periods of rising prices.
B) equal to the money cost.
C) less during periods of falling prices.
D) what is given up to acquire it.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. The firm will stop production and shut down if the price is:
A) $2.50.
B) $3.50.
C) $4.50.
D) $5.00.
Figure: Differences in Risk Aversion
(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion.
Which of the following statements is CORRECT?
A) Ernest will gain more utility from insurance than will Salvatore.
B) Salvatore will gain less utility from an increase in income than Ernest but will lose
more utility than Ernest from a fall in income.
C) Ernest is more risk-averse than Salvatore.
D) If either Ernest or Salvatore buys insurance, adverse selection will occur.
“The rate of unemployment is 9%.” This statement:
A) is positive.
B) is normative.
C) involves a value judgment.
D) is a personal reflection and has no value in economics.
Average variable cost is:
A) variable cost per unit multiplied by quantity.
B) total variable cost divided by quantity.
C) the difference between average total cost and total cost.
D) the difference between total cost and total fixed cost.
Barry’s Brewpub is considering hiring more brewmasters. The market wage for a
brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day,
but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the
market for beer is perfectly competitive, Barry’s Brewpub will hire another brewmaster
only if:
A) a pint of brew sells for $3.
B) the new brewmaster can produce 40 pints.
C) a pint of brew sells for $2.
D) a pint of brew sells for $6 or more.
Which of the following is a normative statement?
A) Government has grown too large and should be reduced.
B) The rate of inflation has increased.
C) Government is subject to the same rules as all other institutions.
D) The money supply grew by 3% last year.
(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The
Production Possibilities for Tractors and Crude Oil. In Mexico the opportunity cost of
producing 40 tractors is _____ barrels of crude oil.
A) 30,000
B) 90,000
C) 120,000
D) 270,000
Figure: Shifts in Demand and Supply
(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose a fall frost destroys one-third of the nation’s orange crop. Which panel BEST
describes how this will affect the market for oranges?
A) panel A
B) panel B
C) panel C
D) panel D
Choices that maximize total utility generally produce demand curves that are:
A) horizontal.
B) upward-sloping.
C) downward-sloping.
D) straight lines.
The idea of diminishing returns to an input in production suggests that if a local college
adds more custodians, the marginal product of labor for the custodial staff will:
A) increase at an increasing rate.
B) increase at a decreasing rate.
C) decrease.
D) not change.
(Table: Workers and Output) Look at the table Workers and Output. After graduation
you achieve your dream of opening an art shop that specializes in selling mud statues.
You pay $10 per day on a loan from your uncle, and regardless of how much you
produce, you pay $10 per day to each of the workers who make the mud statues. The
variable cost of producing 25 statues is:
A) $10.
B) $20.
C) $25.
D) $35.
Javon has 80 hours per week to allocate between labor and leisure. Graph hours of
leisure per week on the horizontal axis and income per week on the vertical axis. If
Javon’s hourly wage is $8, then the opportunity cost of an hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.
Figure: Consumer Surplus III
(Figure: Consumer Surplus III) In the figure Consumer Surplus III, when the price falls
from $30 to $25, consumer surplus _____ for a total consumer surplus of _____.
A) increases by $25; $74
B) decreases by $15; $34
C) increases by $15; $64
D) increases by $5; $54
George owns a dude ranch in Texas. He pays $32,000 per year in insurance, $408,000
in wages, and $23,000 in supplies. He forgoes $32,000 per year he could make as a
police officer. His total revenue last year equaled $460,000. That means his economic
_____ equaled _____.
A) profit; $3,000
B) losses; $3,000
C) losses; $35,000
D) profit; $35,000
A whale is a common resource because the private market _____ prevent consumption
by people who do not pay for it, and the same whale _____ be consumed more than
once.
A) can; can
B) cannot; cannot
C) can; cannot
D) cannot; can
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. Between prices $4
and $5, demand is _____, and total revenue will _____ if price increases.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease