Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC =
MC = $200. At the profit-maximizing output and price for a perfectly competitive
industry, deadweight loss is:
A) $0.
B) $200.
C) $1,600.
D) $3,200.
A price-discriminating firm will adjust prices so that customers with more _____
demand pay _____ than (as) customers with _____ elastic demand.
A) inelastic; less; less
B) elastic; less; less
C) elastic; the same; more
D) elastic; more; less
Dr. Colgate is a dentist who employs an assistant, Ms. Crest. If Dr. Colgate worked all
day at the front desk, she could answer 40 phone calls. If she worked all day with
patients, she could clean the teeth of 40 patients. If Ms. Crest worked all day at the front
desk, she could answer 60 phone calls. If she worked all day with patients, she could
clean the teeth of 20 patients. _____ has a(n) _____ advantage in _____.
A) Dr. Colgate; absolute; answering phones
B) Ms. Crest; comparative; answering phones
C) Ms. Crest; absolute; cleaning patients’ teeth
D) Dr. Colgate; comparative; answering phones
The _____ principle implies that people with _____ should pay more taxes.
A) ability-to-pay; greater benefits received
B) benefits; higher incomes
C) ability-to-pay; higher incomes
D) benefits; fewer benefits
The income elasticity of demand of a normal good is always:
A) between 1 and 0.
B) less than 0.
C) equal to 0.
D) greater than 0.
The outcome of a strategic choice is called a:
A) payoff.
B) game.
C) product.
D) dilemma.
If the price of emergency visits to the doctor rose, we would expect:
A) a large decline in the number of emergency visits to the doctor.
B) only a slight decline in the number of emergency visits to the doctor.
C) the number of emergency visits to the doctor to increase.
D) the total income of doctors to fall dramatically.
(Table: Coffee and Salmon Production Possibilities II) Look at the table Coffee and
Salmon Production Possibilities II. This table shows the maximum amounts of coffee
and salmon, both measured in pounds, that Brazil and Alaska can produce if they just
produce one good. Brazil has a comparative advantage in producing:
A) coffee only.
B) salmon only.
C) both coffee and salmon.
D) neither coffee nor salmon
If the price of a good increases by 15% and quantity demanded changes by 20%, then
the price elasticity of demand is equal to:
A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.
Researchers find a new strain of genetically modified seeds that results in a higher yield
for corn producers. Holding all other things constant, this research will:
A) shift the supply curve for corn left.
B) increase the quantity supplied of corn.
C) decrease the quantity supplied of corn.
D) shift the supply curve for corn to the right.
Although for smokers the marginal benefit from smoking may exceed the marginal cost
of smoking, the negative effects of second-hand smoke may increase the marginal costs
of smoking to society to a point where it exceeds that marginal benefit to society. This
is an example of:
A) individual actions whose side effects are not properly taken into account by the
market.
B) one party preventing mutually beneficial trades in an attempt to capture a greater
share of resources for itself.
C) some goods’ unsuitability for efficient management by markets.
D) regulating self-interest.
The federal government regulates how much carbon dioxide a factory can emit. This
statement best represents this economic concept:
A) Resources are scarce.
B) “How much” is a decision at the margin.
C) Markets usually lead to efficiency.
D) When markets don’t achieve efficiency, government intervention can improve
society’s welfare.
The most important source of oligopoly in an industry is:
A) economies of scale.
B) government regulation.
C) technological inferiority.
D) ownership of plentiful resources.
Suppose a local hardware store has explicit costs of $2 million per year and implicit
costs of $44,000 per year. If the store earned an economic profit of $50,000 last year,
this means that the store’s accounting profit equaled:
A) $94,000.
B) $6,000.
C) $2.05 million.
D) $2.044 million.
A monopoly is an industry structure characterized by:
A) a single buyer and several sellers.
B) a product with many close substitutes.
C) a large number of small firms.
D) barriers to entry and exit.
The economic way of thinking entails:
A) the analysis of benefits but not costs.
B) the analysis of costs but not benefits.
C) making choices at the margin.
D) making the distinction between microeconomics and macroeconomics.
Figure: The Domestic Market for Rice
(Figure: The Domestic Market for Rice) Look at the figure The Domestic Market for
Rice. Assume that PA is the autarky price and PW is the world price. After international
trade, this nation will _____ a quantity of rice equal to _____.
A) import; Qs” Qd
B) export; Qs ” Qd
C) export; Qs ” Qa
D) import; Qa ” Qd
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that
the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero.
Suppose that the two firms are maximizing industry profit and splitting the profit
evenly. If firm 1 decides to cheat and increase production by 10 more barrels, the price
of crude oil will be:
A) $0.
B) $70.
C) $80.
D) $160.
If the wage rate rises, firms will find that:
A) their labor demand curve shifts leftward.
B) their labor demand curve shifts rightward.
C) they move upward and to the left along the labor demand curve.
D) they move downward and to the right along the labor demand curve.
One would expect to see the supply become more price _____ as harvest season
approaches and crops are being brought in from the fields.
A) elastic
B) inelastic
C) unit-elastic
D) inferior
In the long run, all of the firms in a perfectly competitive industry will:
A) produce at an output level at which average total cost equals marginal cost.
B) earn an economic profit greater than zero.
C) exit the industry if price is greater than average total cost.
D) produce an output level at which price is greater than average total cost.
If demand and supply are both very elastic, a decrease in the rate of an excise tax will
likely:
A) decrease government revenue.
B) increase government revenue.
C) not affect government revenue.
D) make demand and supply both inelastic.
In a monopolistically competitive industry:
A) a firm maximizes profits when MR = MC yet P > MC.
B) people would be better off if output were reduced.
C) output could be increased without an increase in total cost.
D) to maximize profits, firms set MR = MC, and people would be better off if output
were reduced.
Figure: Supply and Demand in Agriculture
(Figure: Supply and Demand in Agriculture) Look at the figure Supply and Demand in
Agriculture. If a price floor at P4 is set to help improve farm incomes and the
government wants to assure farmers that their output will be purchased, the government
must purchase an amount of output equal to:
A) Q3 ” Q0.
B) Q3 ” Q1.
C) Q2 ” Q1.
D) Q1 ” Q3.
If the value of beach-front property in Beach City decreases, the people of Beach City
will likely spend _____, causing incomes in Beach City to _____.
A) more; increase
B) more; decrease
C) less; increase
D) less; decrease
The ratio of the prices of two goods is equal to the ratio of the marginal utilities of the
two goods at:
A) the vertical intercept of the budget line.
B) the optimal consumption bundle.
C) the horizontal intercept of the budget line.
D) the intersection of the budget line with the highest indifference curve.
Figure: Game-Day Shirts
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. If the industry is in long-run equilibrium, how many shirts will
each vendor sell?
A) 14
B) 20
C) 22
D) 24
A tax:
A) generates tax revenue and causes deadweight loss.
B) increases consumer and producer surplus.
C) produces revenue for the government and increases total surplus.
D) is always efficient.