Marginal utility can be
A) negative.
B) zero.
C) positive.
D) positive, negative or zero.
A perfectly competitive firm in a constant-cost industry produces 3,000 units of a good
at a total cost of $36,000. The prevailing market price is $15. What will happen to the
number of firms in the industry and to the industry’s output in the long run?
A) The number of firms and the industry’s output increase.
B) The number of firms and the industry’s output decrease.
C) The number of firms remains constant and the industry’s output increases.
D) The number of firms remains constant and the industry’s output decreases.
Table 2-9
Table 2-9 shows the number of labor hours required to produce a canoe and a sailboat in
Guatemala and Honduras.
Refer to Table 2-9. What is Honduras’s opportunity cost of producing one sailboat?
A) 1/5 of a canoe
B) 1.5 canoes
C) 4 canoes
D) 5 canoes
In analyzing the decision to shut down in the short run we assume that the firm’s fixed
costs are
A) implicit costs.
B) capital costs.
C) nonmonetary opportunity costs.
D) sunk costs.
Which of the following arguments could be made as evidence that the market for
produce sold at a farmers’ market is perfectly competitive?
A) The U.S. Department of Agriculture has established standards for the labeling of
organic produce sold at farmers’ markets.
B) Sales of organically grown food have increased at a rate of 20 percent per year.
C) As more farmers began selling their products at farmers’ markets, the increase in
supply has driven down prices to the point where they just cover the cost of production.
D) The profits earned by farmers who sell their products at farmers’ markets have
continued to grow, despite the increasing number of farmers entering this market.
An oligopolist differs from a perfect competitor in that
A) there is cutthroat competition in perfect competition but little competition in
oligopoly because firms have significant market power.
B) firms in an oligopoly do not produce homogeneous products while firms in perfect
competition do.
C) the market demand curve for a perfectly competitive industry is perfectly elastic but
it is downward-sloping in an oligopolistic industry.
D) there are no entry barriers in perfect competition but there are entry barriers in
oligopoly.
A study by the Congressional Budget Office (CBO) regarding the corporate income tax
included the following statement: “A corporation may write its check to the Internal
Revenue Service for payment of the corporate income tax, but the money must come
from somewhere…” The comments that followed this statement argued that
A) corporations pass on some of the burden of the tax to investors in the company, to
workers, and to consumers.
B) the corporate income tax is a reliable source of revenue because corporations cannot
avoid paying the tax.
C) it is necessary to retain the tax because it is based on the ability-to-pay principle.
D) the tax is more progressive than the individual income tax.
A number of economists have estimated the impact of unionization on workers’ wages.
Which of the following is one conclusion reached by these studies?
A) Union workers earn less than they would if they were not unionized. This is because
of the impact of workers’ strikes, during which union members do not receive wages.
B) Holding constant the impact of other factors that affect wages, being in a union has
no impact on a worker’s wages.
C) Being in a union increases a worker’s wages by about 10 percent, holding constant
other factors that influence wages.
D) The share of national income received by workers has increased significantly over
time; unions have been responsible for about one-half of the increase in workers’ share
of national income from the end of World War II to 2000.
Vaccinating people against a communicable disease such as influenza not only reduces
the chances that the person vaccinated will catch the disease but also reduces the
probability that an epidemic of the disease will occur. Which of the following
statements is true?
A) Reducing the chances that the person vaccinated will catch the disease is a private
cost while reducing the probability of an influenza epidemic is a social benefit.
B) Vaccinating people against communicable diseases yields private benefits in excess
of social benefits.
C) Reducing the chances that the person vaccinated will catch the disease is a private
benefit while reducing the probability of an influenza epidemic is a social benefit.
D) The benefits of the influenza vaccination outweigh the costs.
Auctions in recent years have resulted in higher prices paid for letters written by John
Wilkes Booth than those written by Abraham Lincoln. Which of the following events
would cause the price differences in these letters to get smaller?
A) The demand for Booth letters decreases.
B) The supply of Lincoln letters increases.
C) The demand for Lincoln letters increases and the supply of Booth letters increases.
D) The demand for Lincoln letters decreases and the demand for Booth letters
increases.
If the social cost of producing a good or service exceeds the private cost
A) a positive externality exists.
B) the sum of consumer surplus and producer surplus is maximized.
C) the market achieves economic efficiency.
D) a negative externality exists.
Comparable worth legislation
A) will eliminate the earnings gap between men and women.
B) mandate that employers pay the same wages to workers, regardless of their gender,
for jobs that have comparable worth.
C) mandate that potential employers demonstrate that they are worth the wages they
expect to earn.
D) guide markets toward the economically efficient wage.
According to the ability-to-pay principle of taxation
A) individuals who receive the benefit of a good or service should bear a greater share
of the tax burden.
B) it is fair to expect a greater share of the tax burden to be borne by people who have a
greater ability to pay.
C) people in the same economic situation should bear an equal share of the tax burden.
D) individuals who are willing to bear a greater share of the tax burden should be
compensated with non-monetary benefits.
You wish to buy only one CD. Use the rule of equal marginal utility per dollar to
determine which one to purchase: (a) Usher’s latest CD for $15 which gives you 75
units of utility, or (b) Tom Petty and the Heartbreakers’ Greatest Hits for $10 that gives
you 100 units of utility?
What is the difference between a public franchise and a public enterprise?
A) A public franchise grants a firm the right to be the sole legal provider of a good or
service. A public enterprise refers to a service that is provided directly to consumers
through the government.
B) A public enterprise grants a firm the right to be the sole legal provider of a good or
service. A public franchise refers to a service that is provided directly to consumers
through the government.
C) A public enterprise is owned by the public through its holdings of shares of stock in
the enterprise. A public franchise is a firm owned by the government.
D) Both refer to a service provided directly to consumers through the government, but
“public franchise” is a term more commonly used in the United States while “public
enterprise” is more commonly used in European countries.
Table 11-8
Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company’s
cost data.
Refer to Table 11-8. Elegant Settings experiences
A) economies of scale up to an output level of 400.
B) diminishing returns up to an output level of 400.
C) increasing returns beyond an output level of 400.
D) economies of scale at an output of 300 or less and diseconomies of scale at an output
level above 400.
Holding all other personal characteristics-such as age, gender, and income-constant,
economists would expect that
A) people with health insurance will be less likely to be overweight than people without
health insurance.
B) people with health insurance will be more likely to be overweight than people
without health insurance.
C) people with health insurance will be equally likely to be overweight as people
without health insurance.
D) there is no correlation between having health insurance and being overweight.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets
to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed
would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed
would not have sold their tickets for $3,000. These results are evidence of
A) the high value fans place on watching the Super Bowl in person, rather than on
television.
B) the failure of consumers to take into account nonmonetary opportunity costs.
C) the failure of consumers to ignore sunk costs.
D) consumers being overly optimistic about their future behavior.
Consider a downward-sloping demand curve. When the price of an inferior good
decreases, the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
Figure 18-1
Refer to Figure 18-1. Area F+G represents
A) the portion of sales tax revenue borne by consumers.
B) the portion of sales tax revenue borne by producers.
C) the excess burden of the sales tax.
D) sales tax revenue collected by the government.
State whether each of the following goods and services is nonrival, nonexcludable or
both:
a. A toll road
b. A public park
c. A lighthouse
d. An art museum
e. A radio broadcast of “A Prairie Home Companion”
How are the fundamental economic questions answered in a market economy?
A) The government alone decides the answers.
B) Individuals, firms, and the government interact in markets to decide the answers to
these questions.
C) Households and firms interact in markets to decide the answers to these questions.
D) Large corporations alone decide the answers.
If, as a perfectly competitive industry expands, it can supply larger quantities only at a
higher long-run equilibrium price, it is
A) a constant-cost industry.
B) an increasing-cost industry.
C) a decreasing-cost industry.
D) a fixed-cost industry.
Table 14-4
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale
town of Montecito. Each firm must decide on whether to increase its advertising
spending to compete for customers. If one firm increases its advertising budget but the
other does not, then the firm with the higher advertising budget will increase its profit.
Table 14-4 shows the payoff matrix for this advertising game.
Refer to Table 14-4. If Alistair assumes that Baine would increase its advertising
budget, what should it do?
A) Alistair should keep its own budget the same and allow Baine to incur the higher
cost.
B) Alistair should also increase its advertising spending.
C) Alistair should reduce its advertising spending.
D) Being a duopolist, Alistair is not affected by Baine’s choices because it has a secure
50 percent market share.
Steve Ballmer is the Chief Executive Officer of Microsoft as well as a member of
Microsoft’s board of directors. Ballmer is therefore classified as an
A) inside director.
B) outside director.
C) independent director.
D) unbiased director.
The efficient level of paper production will occur where the
A) marginal private benefit from consuming paper is equal to the marginal social cost
of production.
B) marginal social benefit from consuming paper is equal to the marginal social cost of
production.
C) the economically efficient level of the output of paper is equal to the economically
efficient level of inputs.
D) production of paper no longer produces negative externalities.
In New York City, about 1 million apartments are subject to rent control by the local
government. Rent control
A) puts a legal limit on the rent that landlords can charge for an apartment.
B) is a price floor which sets a minimum rent for apartments.
C) only applies to those apartments which are owned and rented out by the local
government.
D) is a government policy which limits apartment rental to those people whose incomes
are less than $50,000 per year.
Figure 14-2
The government of a developing country plans to award two firms, Gigacom and
Xenophone, the exclusive rights to share the market for high speed internet service.
Gigacom and Xenophone can both provide the service either via television cable lines
or via direct subscriber line (DSL). Suppose the government is considering a proposal
to delay one firm’s entry into the market on the grounds that it wants to prevent
“harmful” competition. Figure 14-2 shows the decision tree for this game.
Refer to Figure 14-2. If the government delays Gigacom’s entry and Xenophone moves
first, what is the likely outcome in the market?
A) Both offer internet service via cable line; Xenophone earns a profit of $6 million and
Gigacom earns a profit of $9 million.
B) Both offer DSL internet service; Xenophone earns a profit of $8 million and
Gigacom earns a profit of $7 million.
C) Xenophone offers DSL internet service and earns a profit of $5 million while
Gigacom offer internet service via cable line and earns a profit of $6.5 million.
D) Xenophone offers internet service via cable line and earns a profit of $4 million
while Gigacom offers DSL internet service and earns a profit of $4.5 million.
Economist A.C. Pigou argued that to deal with a negative externality in production, the
government should impose a tax equal to the cost of the externality. What did Pigou
believe should be done in the case of a positive externality in consumption? How would
his recommendation impact the demand and market equilibrium for the product which
is generating the positive externality?
Which of the following statements is true?
A) Whenever a firm raises its price its total revenue will increase.
B) When a firm lowers its price its total revenue may either increase or decrease.
C) Whenever a firm increases its quantity sold its revenue will increase.
D) Total revenue will equal zero when the demand for a product is unit-elastic.
If a firm shuts down in the short run
A) its loss equals zero.
B) its loss equals its fixed cost.
C) is makes zero economic profit.
D) its total revenue is not large enough to cover its fixed cost.
An individual’s labor supply curve shows
A) the maximum wage rates offered to that individual by various potential employers.
B) the relationship between wages and the quantity of labor that she is willing to
supply.
C) the relationship between wages and the quantity of labor that a firm is willing to
employ.
D) the relationship between the quantity of hours worked and total income earned by
that individual.
Figure 12-2
Refer to Figure 12-2. What is the amount of profit if the firm produces Q2units?
A) It is equal to the vertical distance c to g.
B) It is equal to the vertical distance c to Q2.
C) It is equal to the vertical distance g to Q2.
D) It is equal to the vertical distance c to g multiplied by Q2units.
Figure 15-16
Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
Refer to Figure 15-16. Suppose the government regulates this industry in order to
remove the inefficiency implied by the behavior of the profit maximizing owners. If
regulators require that the firm produces the economically efficient output level, what is
this level and what price will be charged?
A) Q4 units; P4
B) Q1 units; P4
C) Q1 units; P1
D) Q3 units; P3