The Sultan of Brunei, one of the world’s richest people, does not face the problem of
scarcity.
a. True
b. False
Exhibit 8-16
Which of the following statements about the perfectly competitive firm represented in
Exhibit 8-16 is false?
a. Short-run losses are maximized at output level q* because MR = MC there.
b. The firm should shut down in the short run.
c. If the firm shuts down in the short run, it will suffer a loss equal to the amount of its
fixed cost.
d. If the firm operates in the short run, it will suffer a loss greater than the amount of its
fixed cost.
e. If the firm operates in the short run, it will suffer a loss equal to the amount of its
fixed cost plus the uncovered portion of its variable cost.
The marginal social benefit curve for water quality slopes downward because
a. the total benefit from clean water decreases as water becomes cleaner
b. the added benefit from cleaner water is greater when water quality is poor than when
water quality is high
c. the added benefit from cleaner water is smaller when water quality is poor than when
water quality is high
d. the total benefit from clean water increases as water becomes cleaner
e. people demand clean water at any price
Exhibit 11-2
In Exhibit 11-2, opportunity cost at equilibrium is represented by area
a. a
b. b
c. c
d. a + b
e. b + c
If the interest rate increases from 3 percent to 4 percent, other things constant,
individuals will want to
a. save and borrow more
b. save and borrow less
c. save more and borrow less
d. save less and borrow more
e. borrow more but save the same amount
International trade does all the following except
a. allow a country to specialize in producing certain goods and services
b. reduce world output
c. allow a country to move to a higher consumption possibilities frontier
d. allow a country’s consumption possibilities frontier to lie outside its production
possibilities frontier
e. increase world output
The statement “Households maximize utility” means that households
a. try to be as useful as possible to the economy
b. are only interested in maximizing their earnings
c. are assumed to buy useful things before they buy luxuries
d. are only interested in acquiring material wealth
e. are assumed to do what they think will increase their satisfaction
One result of asymmetric information in the market for used cars is that
a. few used cars are offered on the market
b. few lemons are sold
c. more lemons may be offered for sale than good cars
d. buyers benefit at the expense of sellers
e. good cars will sell for more than they are worth
The winner’s curse is more likely when the value of a good at auction is uncertain.
a. True
b. False
Some individuals or families can become completely saturated with a service such as
television. This suggests that
a. wants are limited
b. desires for a single commodity can be satisfied but then the focus will switch to other
goods and services
c. a highly productive economy may someday be able to satisfy all human desires
d. resources are not truly fixed in supply as we generally assume
e. scarcity does not exist
Suppose the cross-price elasticity of demand between quinces and muskmelons is 5.
Which of the following must be true?
a. Quinces are normal goods.
b. Muskmelons are normal goods.
c. If the price of quinces rises by $5, the demand for muskmelons will increase by 1.
d. If the price of muskmelons rises by $5, the demand for quinces will increase by 1.
e. Quinces and muskmelons are substitutes.
Exhibit 5-26
Refer to Exhibit 5-26. Between points C and D price elasticity of demand is:
a. unitary
b. elastic
c. inelastic
d. perfectly elastic
e. perfectly inelastic
There are five firms in the cresset industry. The market shares of the five firms are 60
percent, 15 percent, 15 percent, 6 percent, and 4 percent. The Herfindahl index is
a. 96
b. 4,086
c. 10,000
d. 4,102
e. 4,100
If a firm must produce a significant share of market output before low average costs can
be achieved, the structure of this industry will tend to be
a. monopolistic competition
b. perfect competition
c. oligopoly
d. either monopolistic competition or oligopoly
e. either perfect competition or monopolistic competition
A country should export only those goods for which, relative to its trading partners, it
has the
a. absolute advantage
b. highest opportunity cost
c. lowest production possibilities
d. strongest demand
e. lowest opportunity cost
Perfectly competitive firms are sometimes called price makers because they have
significant control over product price.
a. True
b. False
A firm will purchase additional units of a resource as long as each unit’s
a. marginal revenue product is greater than zero
b. marginal revenue product equals the product price
c. marginal revenue product is greater than or equal to its marginal resource cost
d. marginal revenue product is less than its marginal resource cost
e. total revenue product is greater than its marginal resource cost
If the marginal revenue product of the fifth worker hired by a firm is $15 and the price
of a unit of output is $5 regardless of how much is sold, then the marginal product of
the fifth worker is
a. 15 units of output
b. 5 units of output
c. 3 units of output
d. 45 units of output
e. 75 units of output
In determining comparative advantage, cost is measured in terms of
a. foreign currency
b. domestic currency
c. gold only
d. units of weight and measure
e. opportunities forgone
Exhibit 13-5
Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is
considering buying. Assume that any dough-mixing machine is expected to last
indefinitely, that operating expenses are negligible, and that the price of donuts is
expected to remain constant in the future. If the interest rate is 8 percent and the firm
has $3,000 on hand, what should it do?
a. Buy the machine with the three-quart bowl, which costs $3,000.
b. Save $3,000 at the interest rate of 8 percent.
c. Buy the machine with the one-quart bowl and save the extra $2,000.
d. Buy the machine with the two-quart bowl and save the extra $1,000.
e. Buy two machines, with one-quart and two-quart bowls.
In the United States, the dramatic increase in government social spending since the
mid-1960s has
a. made incomes less equally distributed
b. made incomes equally distributed
c. not greatly increased the money income share of the poorest fraction of the
population
d. greatly increased the money income share of the richest fraction of the population
e. decreased the percentage of families in the lowest fifth
The PPP theory says that in the long run the exchange rate between two currencies
should move toward __________ the cost in each country of an identical basket of
internationally traded goods.
a. equalizing
b. minimizing
c. maximizing
d. reducing to zero
e. disequilibrating
Exhibit 2-11
Refer to exhibit 2-11. Costa Rica has a comparative advantage in the production of
T-shirts.
a. True
b. False
Which of the following is an example of roundabout production?
a. Paul pays Ringo to wash his car.
b. A church has a bake sale to raise money for a new narthex.
c. Jane saves her money to buy a stereo.
d. Robinson Crusoe makes a fish net to help him catch more fish per day.
e. Business owners in Minneapolis buy blocks of Minnesota Twins baseball tickets to
help guarantee that the team will stay in town.
Exhibit 4-8
As shown in Exhibit 4-8, when a government sets a rent ceiling at $750 per month, the
result is a(n)
a. equilibrium
b. increase in supply
c. shortage
d. price floor
e. surplus
The formula for optimal employment of two resources, x and y, is
a. MPx – MPy
b. MRPx = MRPy
c. MPx x Px = MPy x Py
d. MRCx = MRCy
e. MRPx/MRCx = MRPy/MRCy = 1
The law of diminishing marginal utility states that as you consume more and more of a
good, other things constant,
a. total utility eventually rises
b. marginal utility can become positive
c. marginal utility approaches, but never becomes, zero
d. total utility can never become negative
e. marginal utility eventually declines
Exhibit 6-7
Consider Exhibit 6-7. Which of the following is true?
a. A fourth can of Pepsi increases total utility by 12, to 126.
b. A fourth can of Pepsi increases total utility by 18, to 114.
c. A fourth can of Pepsi increases total utility by 114.
d. All four cans of Pepsi together yield a total utility of 18.
e. All four cans of Pepsi together yield a total utility of 322.
A cartel’s marginal cost curve is the
a. highest of all the individual firms’ marginal cost curves
b. lowest of all the individual firms’ marginal cost curves
c. horizontal sum of all the individual firms’ marginal cost curves
d. average of all the individual firms’ marginal cost curves
e. product of all the individual firms’ marginal cost curves
Unlike perfectly competitive firms, monopolists can
a. earn positive short-run economic profit even if price is less than average variable cost
at all rates of output
b. sell any quantity of output at any price they choose
c. earn long-run economic profits
d. reduce the sales of other firms in the industry through advertising
e. face a perfectly elastic demand curve
Exhibit 14-3
In Exhibit 14-3 if Jira gathers an amount of information equal to 40 minutes,
a. she has made the optimal search
b. she is relying solely on common knowledge
c. she has acquired all available information that is beneficial to her
d. further information will be costless to her
e. she should increase her search
The statement that there is an inverse relationship between x and y means that
a. x causes y
b. y causes x
c. x and y move in opposite directions
d. either y causes x or x causes y
e. there is no causal relationship between x and y