An improvement in technology will cause the
A) production possibility frontier to shift outward.
B) production possibility frontier to shift inward.
C) economy to move down the production possibility frontier.
D) economy to move closer to its production possibility frontier.
An example of an investment is
A) the purchase of a share of Google stock.
B) the purchase of an Exxon Mobil bond.
C) the purchase of a Hewlett Packard laser printer for use by a business.
D) all of the above.
An alternative to random experiments is to rely on ________ to mimic the controlled
experiment.
A) natural experiments
B) mirror experiments
C) manipulated experiments
D) predetermined experiments
Table 9.1
Refer to Table 9.1. If the market price is $10, then for this firm to maximize profits it
should produce ________ unit(s) of output.
A) zero
B) one
C) two
D) three
Voss Calculator Company has a monopoly on the sale of graphing calculators. If it sells
two of these calculators its total revenue is $500, and if it sells three calculators its total
revenue is $800. The marginal revenue of the third calculator sold is
A) $100.
B) $150.
C) $300.
D) $800.
Which of the following statements is NOT true for a command economy?
A) Consumers have some choices concerning what they buy.
B) The government decides what is produced.
C) The amount of a good supplied always equals the amount of the good demanded.
D) The state decides how to distribute what is produced.
If the official poverty line for a family of four is $15,000, then the Department of
Agriculture’s minimum food bundle costs a family of four ________ per year.
A) $1,500
B) $3,000
C) $5,000
D) $15,000
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
In figure 4.6 at equilibrium, producer surplus is area
A) A.
B) A+B+C.
C) G.
D) E+F+G.
GATT is the international agreement signed by the United States and ________ other
countries in 1947 to promote the liberalization of foreign trade.
A) 13
B) 22
C) 86
D) 97
Marginal revenue for a perfectly competitive firm is
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
Figure 3.2
Refer to Figure 3.2. Which of the following would be most likely to cause the demand
for macaroni and cheese to shift from D1 to D0?
A) an increase in the price of macaroni and cheese
B) an increase in the price of flour used to make macaroni and cheese
C) an increase in income, assuming macaroni and cheese is a normal good
D) an increase in the quantity demanded for macaroni and cheese
Rented DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma
TVs are complements. Plasma TVs and movies shown in theaters are normal goods.
Most plasma TVs sold in the United States are imported from Japan. If the United
States government reduces the number of plasma TVs that can be imported into the
United States, ceteris paribus, what would happen?
A) The price of plasma TVs and the rental price of DVDs would increase.
B) The price of plasma TVs and the rental price of DVDs would decrease.
C) The price of plasma TVs would decrease, and the rental price of DVDs would
increase.
D) The price of plasma TVs would increase, and the rental price of DVDs would
decrease.
If a tax is placed on perfectly competitive firms that impose external costs on society,
the firm’s ________ curve will shift up and the industry ________ curve will shift to
the left.
A) marginal cost; demand
B) marginal benefit; demand
C) marginal benefit; supply
D) marginal cost; supply
Figure 8.8
Refer to Figure 8.8. If this farmer produces the profit maximizing level of soybeans
when the market price is ________ per bushel, then her profit would be $0.
A) $2
B) $8
C) $9
D) $12
Ernie’s Sushi-On-A-Stick is a perfectly competitive firm currently employing 75
workers. The marginal revenue product of the 75th worker is $9.00 per hour. The wage
rate is $12.00 per hour. To increase profits, this firm should
A) decrease employment until the MRP of labor equals $12.00.
B) increase employment until the MRP of labor equals $12.00.
C) continue hiring 75 workers because the firm earns a surplus of $3.00 on each worker
hired.
D) increase the price of sushi-on-a-stick so that the marginal revenue product increases
to $12.00 per hour.
________ occurs when congressional representatives trade votes.
A) Logrolling
B) The voting paradox
C) Market failure
D) An injunction
Which of the following is most likely to be a variable cost for a firm?
A) the interest payments made on loans
B) the franchiser’s fee that a restaurant must pay to the national restaurant chain
C) the monthly rent on office space that it leased for a year
D) the payroll taxes that are paid on employee wages
Which of the following is false about the expected flow of future benefits?
A) Firms must rely on forecasts of expected future benefits to make sensible investment
decisions.
B) Households, business firms, and governments all evaluate the expected flow of
benefits when making investment decisions.
C) If future benefits are overestimated by the firm, the firm will under invest in capital.
D) Only those investment projects in the economy that are expected to yield a rate of
return higher than the market interest rate will be funded.
An institution through which buyers and sellers interact and engage in exchange is
A) a central authority.
B) “laissez-faire.”
C) a market.
D) a production frontier.
Table 11.2
Refer to Table 11.2. If the interest rate is 11%, then the farmer will only
A) buy the bookkeeping software.
B) buy the bookkeeping software and the grain storage tanks.
C) buy the tractor and the irrigation system.
D) buy the tractor.
Figure 18.2
Refer to Figure 18.2. Based on this diagram, which of the following statements is true?
A) To both Pam and Molly, Point B is clearly preferable to Point C.
B) Point D is the best point that this society can obtain.
C) Both Pam and Molly are better off at Point C than at Point B.
D) From this information, it is impossible to determine if society is better off at Point A
or Point C.
Below are cost curves for Dom’s Barber Shop, a monopolistically competitive firm.
Figure 15.1
Refer to Figure 15.1. From society’s point of view, the efficient level of output is
A) 20 haircuts.
B) 23 haircuts.
C) 25 haircuts.
D) 30 haircuts.
Figure 3.7
Refer to Figure 3.7. A movement from Point C to Point B on demand curve D2 would
be caused by a(n)
A) decrease in income, assuming pizza is a normal good.
B) decrease in the price of hamburgers, assuming that pizza and hamburgers are
substitutes.
C) decrease in the price of pizza.
D) increase in the price of pizza.
For the bottom 10% of families in the income distribution, transfer payments account
for approximately ________ of income.
A) 3%
B) 38%
C) 52%
D) 80%
In the short run, whenever excess demand exists, it is necessary to
A) ration the good.
B) put the good on sale.
C) increase the supply of the good.
D) impose a price ceiling on the good.
The short-run average total cost curve eventually begins to increase at an increasing rate
because of
A) economies of scale.
B) the constraint that the firm cannot change production technologies.
C) diminishing returns.
D) increasing returns to scale.
Sponsors invest $250,000 in a new deli on the promise that they will earn a return of
10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli’s
fixed costs include the return to investors and $79,000 in other fixed costs. Variable
costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per
week). The deli is open 52 weeks per year.
The deli’s profit ________ when the average price per sandwich is $7.50.
A) $78,000
B) $182,000
C) $286,000
D) $311,000
Figure 8.6
Refer to Figure 8.6. The vertical distance AB is Outdoor Equipment’s
A) marginal cost.
B) average fixed cost.
C) total fixed cost.
D) total cost.
Which of the following would an economist classify as capital?
A) a $50 bill
B) a corporate bond
C) a post office employee
D) a guitar used by a musician
As a firm’s total cost for capital and labor decreases, its isocost line
A) shifts parallel outward from the original isocost line.
B) shifts parallel inward from the original isocost line.
C) rotates outward on the Y-intercept.
D) rotates outward on the X-intercept.
Figure 3.18
Refer to Figure 3.18. The current price of a bag of pretzels is $1.10. You accurately
predict that in this market,
A) price tends to remain constant, and quantity supplied increases.
B) price, quantity demanded, and quantity supplied decrease.
C) price and quantity demanded increase, and quantity supplied decreases.
D) price and quantity supplied decrease, and quantity demanded increases.
The table shows the relationship between income and utility for Lucy.
Table 17.2
Refer to Table 17.2. Lucy earns $20,000 annually. She has the opportunity to bet her
entire salary on the upcoming super bowl. If Lucy takes the bet, she will pick the
Packers. She believes that the Packers have a 50-50 chance of winning the game. If the
Packers win, Lucy will double her money ($40,000) but if they lose she loses her entire
salary ($0). This bet can be characterized as
A) risk neutral.
B) an unfair bet.
C) a fair bet.
D) risk loving.
Table 20.3
Refer to Table 20.3. Trade will flow in both directions between countries only if the
price of the euro is between
A) $1.00 and $2.25.
B) $.44 and $1.00.
C) $.40 and $.50.
D) $.60 and $.75.
Figure 3.7
Refer to Figure 3.7. An increase in quantity demanded is represented by movement
A) from D2 to D1.
B) from D2 to D3.
C) along D2 from Point B to point A.
D) along D2 from Point B to point C.
What arguments can be made for government regulation of concentrated markets? What
arguments can be made against such government regulation?
Assume that a manufacturer of new handheld computer makes a sales pitch to a retailer
in which he is willing to sell 5,000 at $10, 7,000 for $8, 9,000 for $7. But any orders
above that amount will start costing the retailer more money on a per-unit basis. The
president of the retailer asks why he can”t get a discount if he orders more. Can you
provide an answer that would help this president understand this apparent paradox?
Frank Banks manufactures and sells piggy banks in a perfectly competitive market. The
firm recently purchased new equipment with an expected rate of return of 7 percent. If
the market rate of interest is 8 percent, was the firm’s decision to purchase the
equipment a wise one? Explain.
Why have poverty rates fallen for the elderly since 1960?
Assume that the original manuscript of Adam Smith’s the Wealth of Nations is
discovered and the estate auctions it off to the highest bidder a price of $1,000,000
show with the use of a graph what takes place and explain the process.
In the figure below, is the slope positive or negative? Calculate the slope.
Comment on the following statement: “Average fixed cost falls as output rises, but
average fixed cost will never be equal to zero.”
ABC Company is currently producing 450 units of output. The output is sold in a
perfectly competitive market at a price of $35. The marginal cost of the 450th unit is
$38. Is ABC Company producing at the profit-maximizing level of output? Explain.
Explain how it is possible for a recently retired postal worker to be more wealthy than a
rookie professional football player even though it is widely recognized that football
players earn more than postal workers.
Define the following: market equilibrium, surplus, and shortage.
There is a famous economics saying that argues “if diminishing marginal productivity
never set in then the world could be fed from a flower pot.” Explain what this means
economically.
Define what is meant by the tax base and give an example.
Why is it that the enforcement of contracts by government is so crucial to the conduct
of business?
Why do you suppose that taxes are often used in place of effluent charges in order to
combat pollution?
In the 1970s a typical college student’s consumption might be represented by the
following items: a small used car, black and white television set, macaroni and cheese
and generic brand beer. As many of these students graduated from college what do you
expect happened to the composition and quantity of the goods mentioned? Explain.
If a good is scarce, does that imply that there is a shortage of it?
What are the implications for economic growth for countries specializing in consumer
goods rather than capital goods? Assume that they cannot trade what they produce.
Critically evaluate the following statement. “If a country has an absolute advantage in
the production of everything it necessarily follows that it will have a comparative
advantage in the production of everything.”
The S.G. Allen Fabric Company sells cotton fabric in a perfectly competitive market at
a price of $4 per yard. Its marginal cost, average variable cost, and average total cost
curves can be seen below:
Find the profit-maximizing level of output and mark it q*. Shade in
the area of profit earned by the firm. Is it positive or negative? How do you know?
Suppose that the price of capital falls. Does this necessarily imply that the demand for
labor will fall? Explain.