Assume the supply curve shifts to the right by a given amount at each price. The price
in the market will decline the most if demand is more _____ and supply is more _____.
A) price-elastic; price-elastic
B) price-inelastic; price-elastic
C) price-elastic; price-inelastic
D) price-inelastic; price-inelastic
The short-run industry supply curve:
A) shows the total quantity supplied by all firms in an industry for each possible price
when the number of producers is fixed.
B) is drawn on the assumption that the number of firms in the industry doesn’t increase,
but it allows for a decrease in the number of firms due to bankrupt firms leaving the
industry.
C) is a meaningful concept only if all firms in the industry are identical.
D) is of limited usefulness, since it is not relevant when markets are perfectly
competitive.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets with no marginal cost or fixed cost. If industry output is 350
gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to
increase output by 100, industry output will be:
A) 700.
B) 600.
C) 500.
D) 400.
Figure: The Demand for Bricklayers
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
Which of the following statements is TRUE?
A) Bricklayers should be hired whenever the value of the marginal product of
bricklayers is greater than or equal to the market wage rate of bricklayers.
B) The profit-maximizing condition for firms hiring bricklayers is where
VMPLbricklayers is less than the market wage rate.
C) The profit-maximizing condition for firms hiring bricklayers is where MPbricklayers
equals the market wage rate.
D) Bricklayers should be hired whenever the market wage rate of bricklayers is greater
than the value of the marginal product of bricklayers.
The marginal productivity theory of income distribution says that:
A) each factor is paid the equilibrium value of the output generated by the last unit of
that factor employed in the factor market as a whole.
B) each factor is paid an amount greater than the value of the output generated by the
last unit of that factor employed in the factor market as a whole.
C) each factor is paid an amount less than the value of the output generated by the last
unit of that factor employed in the factor market as a whole.
D) the payment to each factor does not correspond to the marginal product of the factor.
Figure: Pollution and Efficiency
(Figure: Pollution and Efficiency) Point _____ in the figure Pollution and Efficiency
represents an efficient solution in this market, where sulfur emissions are a result of
production.
A) A
B) B
C) E
D) F
Figure: A Tariff on Oranges in South Africa
(Figure: A Tariff on Oranges in South Africa) Look at the figure A Tariff on Oranges in
South Africa. When the government imposes a tariff on imported oranges, the price of
oranges in South Africa rises from PW to PT and domestic consumer surplus _____ to
_____.
A) falls; F + L
B) falls; F + G + I + J + K + L
C) rises; F + L
D) rises; F + G + I + J + K + L
Figure: Unemployment Rate over Time
(Figure: Unemployment Rate over Time) Look
at the figure Unemployment Rate over Time. In the time-series graph, as we move from
1997 to 2001, we see that the unemployment rate has _____ from approximately _____
to approximately _____.
A) decreased; 5%; 4%
B) increased; 5.3%; 7.3%
C) decreased; 7.8%; 5.5%
D) increased; 4%; 6.3%
Monopolistic competition is different from monopoly because firms:
A) have some power to set prices.
B) have a downward-sloping demand curve.
C) face some competition.
D) have a downward-sloping marginal revenue curve.
(Table: Willingness to Pay for Peanuts) Using the table Willingness to Pay for Peanuts,
if the price of a bag of peanuts is $4, what is the value of George’s consumer surplus?
A) $4
B) $3
C) $6
D) $10
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve
represents the marginal cost of providing streetlights in a neighborhood that is
composed of two people, Ann and Joe. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to AC. Providing G streetlights is _____
because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to
B) efficient; greater than
C) inefficient; greater than
D) inefficient; less than
You are planning to study eight hours this week for your economics final and are
considering studying a ninth hour. You should:
A) compare the benefits of one more hour of study with the cost of one less hour of
sleep.
B) compare the benefits of one more hour of study with the cost of one less hour of
studying calculus.
C) compare the benefits of one more hour of study with the cost of one less hour of
work at your part-time job.
D) make your decision based on the cost of the next best alternative use of your time
compared to the benefit of one more hour of study.
The ability-to-pay principle is a good justification for:
A) the welfare state.
B) the income tax structure.
C) government transfers.
D) the welfare state, the income tax structure, and government transfers.
If those who are most willing to bear risk end up bearing it, then we say that the
insurance market is:
A) experiencing adverse selection.
B) efficient.
C) equitable.
D) showing signs of moral hazard.
Marginal analysis:
A) refers to decisions about whether or not to engage in a particular activity.
B) is primarily used when making an either-or choice.
C) is used primarily when deciding how much of an activity should be done.
D) does not help when making a “how much” choice.
An increase in the demand for autoworkers may come about because of all of the
following EXCEPT a(n):
A) increase in the price of cars.
B) decrease in the market wage rate.
C) increase in the productivity of autoworkers.
D) increase in the supply of other factors that autoworkers use in production.
Scenario: Tom’s Budget Constraint
Tom is trying to decide how to allocate his $50 budget for music downloads and online
movie streaming when the price of a music download is $1 and the price of a movie is
$5.
(Scenario: Tom’s Budget Constraint) Read the scenario Tom’s Budget Constraint. If we
measure music downloads on the horizontal axis and movies on the vertical axis, the
horizontal intercept of Tom’s budget line is:
A) 100.
B) 50.
C) 20.
D) 1/2.
If quota rents do not accrue to the government, then the net loss to the government from
an import quota is _____ the deadweight loss from an equivalent tariff.
A) less than
B) greater than
C) equal to
D) in the case of demand and supply both being elastic, less than
Tradable pollution permits are a(n):
A) tax system for internalizing pollution costs to the market.
B) subsidy system for charging consumers for the use of common property resources.
C) system of voluntary negotiations between polluters and damaged parties.
D) system of exchangeable licenses that enable the holder to pollute up to a specified
amount during a given period.
Lenoia runs a natural monopoly producing electricity for a small mountain village. The
barrier preventing other firms from competing with her is:
A) her control of scarce natural resources.
B) economies of scale.
C) her technological superiority.
D) a government-set barrier.
For which of the following goods is the marginal social benefit necessarily greater than
the marginal private benefit?
A) public goods
B) common resources
C) artificially scarce goods
D) private goods
In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of
tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750
boxes of tulips. Trade will take place between these two countries if 1 ton of beef costs
_____ boxes of tulips.
A) 20
B) 5
C) 12
D) 8
The primary emphasis in macroeconomics is on:
A) how firms set prices.
B) the national economy.
C) marginal analysis.
D) bits and pieces of the economy.
A monopolist’s marginal cost curve shifts up, but the firm’s demand curve remains the
same and the firm does not shut down. Compared to the condition before the increase in
marginal costs, the monopolist will _____ its price and _____ its level of production.
A) raise; decrease
B) not change; decrease
C) raise; increase
D) lower; increase
Scenario: Private and External Benefits
A small community finds that tidy lawns and neighborhoods provide both private and
external benefits. They determine that the marginal private benefit (MPB) of lawns can
be represented by the equation MPB = 50 ” 0.5Q, where Q is the number of hours spent
on keeping lawns tidy. The marginal private cost (MPC) of such lawn upkeep is
represented by the equation MPC = 0.5Q, where Q is again the number of hours
engaged in lawn upkeep.
(Scenario: Private and External Benefits) Look at the scenario Private and External
Benefits. The community estimates the marginal social benefit from lawn upkeep to be
$15. Given this information, what is the socially optimal amount of lawn upkeep for
this community?
A) 0 hours
B) 45 hours
C) 50 hours
D) 65 hours
Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of
the percentage change in price (by the midpoint method) is approximately:
A) 28%.
B) 10%.
C) 5%.
D) 15%.
Which of the following is sold in the factor market?
A) hot dogs
B) bulldozers
C) nail polish
D) appendectomies
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30,
how many lots should Alexa clear?
A) 50
B) 40
C) 30
D) 20
If the marginal benefit received from consuming a good is equal to the marginal cost of
production:
A) society’s well-being cannot be improved by changing production.
B) society’s well-being can be improved if production decreases.
C) society’s well-being can be improved if production increases.
D) the market is producing too much of the good.