If a country has the comparative advantage in producing cloth, in the market for cloth
the autarky price would be _____ the world price and the country would _____ cloth.
A) less than; export
B) greater than; export
C) less than; import
D) the same as; export
Scenario: The Market for Good X: The market for good X can be depicted with the
following demand and supply equations: Demand: P = 50 ” 0.5Q Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on
imposing a $1 per unit tax on this good.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The
tax revenue collected by government from a $1 per unit tax will be:
A) $1.00.
B) $58.80.
C) $60.00.
D) $60.50.
(Table: Security in a Residential Community) Look at the table Security in a Residential
Community. The efficient number of security guards is:
A) 0.
B) 2.
C) 3.
D) 4.
According to the _____ principle, those who use public services should bear the burden
of the tax that pays for them.
A) ability-to-pay
B) tax fairness
C) benefits
D) spending
If two goods are complementary, we can assume that the cross-price elasticity of
demand for these goods is:
A) between 0 and 1.
B) equal to 0.
C) greater than 1.
D) less than 0.
Figure: Harold’s Indifference Curves The figure shows three of Harold’s indifference
curves for bread and cheese.
(Figure: Harold’s Indifference Curves) Look at the figure Harold’s Indifference Curves.
If the price of bread is $2 per loaf, the price of cheese is $2 per pound, and Harold has
$10 to spend on bread and cheese, Harold’s optimal consumption bundle is _____
loaves of bread and _____ pounds of cheese.
A) 6; 4
B) 4; 3
C) 3; 2
D) 2; 8
(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 43 statues is:
A) $10.
B) $20.
C) $40.
D) $43.
When an economy moves from autarky to free international trade, for industries in the
export sector, consumer surplus _____, producer surplus _____, and the economy as a
whole _____.
A) rises; rises; gains
B) rises; falls; gains
C) falls; rises; gains
D) falls; rises; loses
Figure: Payoff Matrix for Ajinomoto and ADM
(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for
Ajinomoto and ADM. The optimal combination for maximum combined profit occurs
when ADM produces _____ million pounds and Ajinomoto produces _____ million
pounds.
A) 30; 30
B) 40; 40
C) 30; 40
D) 40; 30
All of the following are examples of an external cost EXCEPT:
A) the smoke nuisance of a factory.
B) zoning restrictions on your property.
C) land defilement from strip mining.
D) weeds on your next-door neighbor’s lawn.
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows
how an industry consisting of two firms that face identical demand curves (D1) can
collude to increase profits. If the firms collude to share the market demand equally, then
each firm will act as if its demand curve is given by _____, while the market demand
curve is given by _____.
A) D1; MR2
B) D2; D1
C) D1; D2
D) MR1; MR2
(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. Which of the following is a point
on Alexa’s short-run supply curve?
A) P = $40; Q = 10
B) P = $10; Q = 200
C) P = $35; Q = 50
D) P = $0; Q = 0
Automobile emissions generate pollution, have costs, and cause discomfort to residents
of a city. In this case:
A) too little of society’s resources is being used to operate automobiles.
B) the externality can be internalized by imposing a specific tax on drivers.
C) there is an external benefit to society from operating automobiles.
D) the externality can be internalized by granting a specific subsidy to drivers.
If large fixed costs result in ATC falling as output increases and this occurs over the
relevant range of output, this industry is a:
A) constant-cost industry.
B) natural monopoly.
C) network externality.
D) profit maximizer.
The _____ is the increase in output that is produced when a firm hires an additional
worker.
A) average product
B) total product
C) marginal product
D) marginal cost
If two goods are substitutes, their cross-price elasticity of demand is:
A) less than 0.
B) negative but almost equal to 0.
C) equal to 0.
D) greater than 0.
Paola gets 50 units of utility when she consumes 4 cupcakes and 2 glasses of milk. She
also gets 50 units of utility when she consumes 3 cupcakes and 2 glasses of milk. This
means that:
A) Paola likes milk better than cupcakes.
B) Paola likes cupcakes better than milk.
C) these combinations lie on the same indifference curve.
D) one of these combinations lies on a higher indifference curve.
Figure: The Market for Calculators
(Figure: The Market for Calculators) Look at the figure The Market for Calculators.
Assume that S and D represent the domestic demand and supply of calculators. The
world price, PW, equals $100. The government imposes a quota restricting imports to 25
calculators. If import licenses are granted to foreigners, the net loss due to the import
quota is equal to area:
A) K + L.
B) G + J.
C) G + H + I + J.
D) G + H + I + J + K + L.
Figure: Monopolistic Competition II
(Figure: Monopolistic Competition II) Panel _____ in the figure Monopolistic
Competition II shows a monopolistic competitor earning a loss in the short run.
A) (a)
B) (b)
C) (c)
D) None of the panels shows a loss in the short run.
(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is one of many firms in a competitive industry, what
price will he charge for a lunch in the long run?
A) $10
B) $8
C) $6
D) $4
Which of the following is a normative statement?
A) The rate of unemployment is 9%.
B) The price of gasoline should be less than $4 per gallon.
C) The federal government spends half of its budget on national defense.
D) Millions of Americans lack health insurance.
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. If
Andy consumes one fewer pumpkin and Ben consumes one more pumpkin than in
equilibrium, total surplus will _____ by _____.
A) increase; $17
B) increase; $15
C) decrease; $8
D) decrease; $3
A rational economic decision:
A) must always result in the largest economic payoff.
B) usually results in the smallest economic payoff.
C) may or may not result in the largest economic payoff.
D) is concerned with efficiency but not with equity or fairness.
Tara notices that studying for one hour after class increases her economics grade by 11
points. The second hour yields a 7-point gain, the third hour yields a 4-point gain, and
the fourth hour yields only a 1-point gain. This means that the marginal _____ of
studying decreases with study hours.
A) cost
B) benefit
C) opportunity cost
D) time
In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly
because it:
A) earns no economic profit.
B) charges a price equal to marginal cost.
C) charges a price greater than marginal cost.
D) charges a price equal to average total cost.
Figure: Tom’s Production Possibilities
(Figure: Tom’s Production Possibilities)
Look at the figure Tom’s Production Possibilities. The opportunity cost for Tom to move
from point C on the curve to point A is:
A) 10 coconuts.
B) 30 fish.
C) 5 coconuts.
D) There is no opportunity cost.
In Ventura County, California, strawberry production is limited by the number of acres
available for agriculture production. This statement best represents this economic
concept:
A) Resources are scarce.
B) “How much” is a decision at the margin.
C) There are gains from trade.
D) Resources should be used as efficiently as possible to achieve society’s goals.
Calculating the marginal rate of substitution assumes that _____ remain(s) unchanged.
A) prices
B) money income
C) satisfaction
D) the quantities of both goods
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how many lawns will Alex mow?
A) 20
B) 30
C) 40
D) 50
Table: The Market for Taxi Rides
(Table: The Market for Taxi Rides) Look at the table The Market for Taxi Rides. If a
government quota limit at 6 million rides is imposed, the quota rent accruing to the
owner of a taxi medallion will be _____ per ride, but there will be a total missed
opportunity (inefficiency) to consumers and producers of _____ million rides.
A) $1; 1
B) $2; 2
C) $3; 3
D) $4; 4