As the price of milk increases, producers are normally willing to supply greater
quantities. This response is known as the law of
a. supply
b. demand
c. averages
d. variable proportions
e. increasing costs
The current account reflects
a. trade in tangible products
b. trade in goods as well as services
c. trade in services only
d. the purchase of securities from foreigners
e. the sale of securities to foreigners
The fact that exchange rates are nearly identical in different markets around the world is
due to
a. the actions of speculators
b. official action by central banks around the world
c. the actions of arbitrageurs
d. agreement by policy makers of the major industrial countries
e. the actions of currency converters
Exhibit 2-4
In Exhibit 2-4, if all the economy’s resources are used efficiently to produce good A,
then the economy is at point
a. h
b. e
c. d
d. i
e. c
Which of the following characteristics does perfect competition have in common with
monopolistic competition?
a. price-taking firms
b. homogeneous products
c. no barriers to entry
d. horizontal demand curve
e. neither market advertises
Suppose Thelma and Louise both sell fried green tomatoes in a perfectly competitive
market. If Louise increases her output,
a. Thelma must reduce output
b. the price Thelma can charge falls
c. the price Thelma can charge rises
d. the price Thelma can charge is unaffected
e. Thelma’s profits must fall
Deforestation is occurring in tropical areas because
a. long-run economic considerations outweigh short-run considerations
b. global economic considerations outweigh domestic considerations
c. tropical soil is good for growing farm crops
d. the value of jobs created by deforestation exceeds the cost to society
e. there is no property right to the earth’s climate
If the demand for bicycles increases,
a. the quantity demanded decreases
b. equilibrium price increases and equilibrium quantity decreases
c. equilibrium price decreases and equilibrium quantity increases
d. quantity supplied increases
e. quantity supplied decreases
Bad risks may be the most willing to pay high interest rates and thus get loans. This
describes an example of
a. symmetrical information
b. adverse selection
c. natural selection
d. moral hazard
e. the winner’s curse
Gooey Flakes is the only ready-to-eat cereal that has chocolate syrup injected into each
flake. The machine that injects the syrup into the flakes can do nothing else. Which of
the following is true?
a. All of the machine’s earnings are economic rent.
b. All of the machine’s earnings are opportunity cost.
c. The supply curve for this machine is horizontal.
d. The demand curve for this machine is horizontal.
e. The demand curve for this machine is vertical.
The purchasing power parity (PPP) theory suggests the prices of identical items will
equalize internationally. An illustration that supports this theory is the fact that the price
of a McDonald’s “Big Mac” is the same around the world.
a. True
b. False
A government passes a new law allowing only 1,000 tons of pollution per day to be
generated and simultaneously sells 1,000 transferable rights to emit one ton each of
pollution per day. Which of the following is true?
a. The pollution will be created by those least willing and able to pay the damages.
b. The pollution will be created by those most willing and able to pay for the right to
pollute.
c. The funds collected by the government will be enough to compensate any individuals
harmed by the pollution.
d. Pollution will increase from zero to 1,000 units per day.
e. There will be no incentive for polluters to try to sneak emissions past government
monitoring devices.
For a nondiscriminating monopolist, which of the following is false?
a. The monopolist produces where MR = MC.
b. The monopolist’s marginal revenue curve is the same as its demand curve.
c. The monopolist will never produce in the inelastic range of its demand curve.
d. A monopolist is more allocatively inefficientthan a perfectly competitive firm.
e. The monopolist produces where P > MC.
What would happen if the price of novels increased and novels are measured on the
horizontal axis of a budget line diagram?
a. The budget line would shift to the right.
b. The budget line would rotate outward along the horizontal axis.
c. The budget line would rotate inward along the horizontal axis.
d. The budget line would rotate outward along the vertical axis.
e. The budget line would rotate inward along the vertical axis.
Exhibit 17-7
Exhibit 17-7 represents the consumer market for driving their automobiles. If drivers
base their driving decisions on the marginal social cost of driving their cars, how many
miles will they drive?
a. 1,000 miles
b. 2,000 miles
c. 3,000 miles
d. 4,000 miles
e. 5,000 miles
Compared to the pay increase from just a third year of college, the actual pay increase
resulting from a fourth year that results in graduation is
a. several times smaller
b. the same
c. only very slightly greater
d. several times greater
e. No economist has ever studied this issue
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the
quantity demanded from 100 to 80 units, then the value of price elasticity of demand is
a. elastic
b. inelastic
c. unit elastic
d. suggestive of an inferior good
e. equal to -20
Exhibit 11-1
Condider Exibit 11-1. Each of the panels depict the supply and demand conditions in a
resource market. In which of the panels will the resource earnings be entirely economic
rent?
a. panel (a)
b. panel (b)
c. panel (c)
d. panel (d)
e. panel (e)
Which of the following is the best example of a vertically integrated firm?
a. General Electric, which produces light bulbs, jet engines, washing machines, and so
on
b. Kinko’s, which has a photocopy store near many colleges and universities
c. USX Corporation, which owns ore and coal mines, coke ovens, blast furnaces, mills,
and foundries
d. Intel, which makes computer chips for most of the computer manufacturers
e. Century 21, which has real estate offices that help people sell a house in one city and
buy another house in another city
All economic models must involve simplifications because
a. economists would be unable to command high salaries if their models were so simple
that anyone could understand them
b. human behavior is very erratic and unpredictable
c. reality is too complex to understand in its entirety, so we must reduce it to a level that
we can understand
d. they always try to duplicate all possible information and cover all possible variables
that might influence decision making
e. we must rely on value judgments and ignore reality
Exhibit 12-5
Consider Exhibit 12-5. If a union imposes a wage floor at $5, then
a. the excess demand for labor will lead to unemployment
b. the excess supply of labor will cause the wage to fall to $4
c. fewer people will be hired than would be in a competitive market
d. the excess demand for labor will lead to a drop in wages
e. the excess demand for labor will lead to an increase in wages
Holey Doughnuts and Clair’s Eclairs want to merge. Each has 2 percent of the local
pastry market. It is most likely that
a. the Department of Justice would challenge the merger but the Federal Trade
Commission would not
b. the Federal Trade Commission would challenge the merger but the Department of
Justice would not
c. the merger will go unchallenged because it will not tend to reduce competition
d. the government will successfully challenge the merger because it is a horizontal
merger
e. the government will successfully challenge the merger because it is a vertical merger
The common pool problem
a. occurs whenever goods are not rivals in consumption
b. is an example of adverse selection
c. arises whenever property rights are well defined
d. is usually caused by government intervention into private markets
e. is one in which resources to which access is unrestricted will tend to be overused
Exhibit 10-1
In Exhibit 10-1, the monopolistic competitor’s profit-maximizing level of output is
a. 75 units
b. 100 units
c. 125 units
d. 150 units
e. 137.5 units
Exhibit 7-14 Total Cost Curve
In Exhibit 7-14, what is the average variable cost when producing 10 units of output?
a. $0
b. $2.00
c. $4.30
d. $4.60
e. cannot be determined from the total cost curve
Economics employs a scientific methodology. In part, this means that
a. all economic laws have been proven true by laboratory tests
b. there is a single economic theory accepted by all economists
c. economic hypotheses are tested to determine their validity
d. personal values never enter into economic policy recommendations
e. assumptions are not necessary in economic science
When firms in an industry produce differentiated products,
a. long-run economic profit will always be zero
b. short-run economic profit will always be positive
c. the demand curves facing firms will always be perfectly elastic
d. the demand curves facing firms will always be downward-sloping
e. new firms will always have an incentive to enter the industry in the long run
If the value of the euro increases relative to the U.S. dollar, then French goods will be
less expensive in the U.S.
a. True
b. False
Accounting profit is
a. always less than economic profit
b. never less than economic profit
c. equal to economic profit if a normal profit is earned
d. less than economic profit only when implicit costs are greater than explicit costs
e. greater than economic profit only when implicit costs are greater than explicit costs
Exhibit 10-16
Consider the situation depicted for the monopolistically competitive firm in Exhibit
10-16. What would you expect to happen in this market in the long-run?
a. exit of resources will occur and this firm’s demand curve will shift out leading to a
higher price
b. exit of resources will occur and this firm’s demand curve will shift out leading to a
lower price
c. nothing will happen the industry is in long-run equilibrium
d. entry of new resources will occur and this firm’s demand curve will shift in leading to
a lower price
e. entry of new resources will occur and this firm’s demand curve will shift in leading to
a higher price
The two major trading partners of the United States are
a. Germany and Mexico
b. Mexico and Canada
c. Japan and Canada
d. Canada and Brazil
e. Brazil and Japan
The federal government’s earned-income tax credit
a. provides support only for elderly and disabled poor
b. represents a type of in-kind transfer program
c. provides food assistance to the working poor
d. reduces taxes if the poor buy housing
e. offers an income tax refund to the working poor greater than the taxes they paid
Exhibit 10-1
In Exhibit 10-1, the price that the monopolistic competitor will charge at the
profit-maximizing level of output is
a. $2
b. $4
c. $8
d. $9
e. $10