A leftward shift of a supply curve is caused by:
A) an increase in the number of sellers.
B) a technological improvement in production.
C) an increase in the cost of an input.
D) an increase in the number of buyers.
Eli has annual earnings of $100,000 and Molly has annual earnings of $50,000. Each
consumer goes to the mall and purchases a microwave oven for $100, and each pays an
additional 7%, or $7, in sales tax. This tax is:
A) regressive.
B) a wealth tax.
C) progressive.
D) a property tax.
When price discrimination occurs, the producer’s profit is _____ if the producer charges
each customer the same profit-maximizing price where marginal revenue equals _____
cost.
A) the same as; marginal
B) more than; marginal
C) less than; marginal
D) the same as; average total
Oligopolies are industries:
A) dominated by one seller who shares market power equally with all other sellers.
B) made up of few firms, each with some market power and therefore aware of their
interdependence with the other firms.
C) composed of many buyer and sellers, all of whom are price takers.
D) that are the same as monopolistically competitive industries except that they sell a
standardized product.
The pooling of risk is a _____ form of diversification that produces a payoff with a very
_____ risk.
A) weak; large
B) weak; small
C) strong; large
D) strong; small
Determining who bears the burden of the tax is a question about:
A) tax incidence.
B) externality analysis.
C) public interest theory.
D) public choice theory.
Which of the following would shift the demand curve for new textbooks to the right?
A) a decrease in the price of paper
B) a fall in the price of used textbooks
C) an increase in college enrollment
D) a fall in the price of new textbooks
Figure: Market Failure
(Figure: Market Failure) Look at the figure Market Failure. Suppose it represents the
demand for and marginal cost per pound of shrimp in the bay. The additional cost of the
shrimp due to the depletion of the common resource is equal to AC. At output F _____
is being produced.
A) too much shrimp
B) not enough shrimp
C) the efficient amount of shrimp
D) the socially optimum amount of shrimp
Because of trade, a country may:
A) consume outside its production possibility frontier.
B) consume inside its production possibility frontier.
C) find its production possibility frontier shifting outward.
D) avoid opportunity costs.
(Table: Bundles of X and Y) Look at the table Bundles of X and Y. According to the
table:
A) bundle D is preferred to bundles A and B.
B) the consumer is indifferent among bundles A, B, and C.
C) bundles C and D are both preferred to bundles A and B.
D) bundle C is preferred to all other bundles.
(Table: Quantity Supplied and Quantity Demanded) Look at the table Quantity Supplied
and Quantity Demanded. A price floor equal to _____ would produce excess supply in
this market.
A) $5
B) $10
C) $15
D) $20
Companies offering life insurance often require a drug test to determine whether the
buyer is a smoker. A smoker must pay a higher premium. This is an example of:
A) providing the buyer with a personal stake, a way of dealing with moral hazard.
B) screening to deal with adverse selection.
C) the demand curve shifting right because of an increase in risk.
D) pooling of risk with others.
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The
price of a book is $5 and the price of a pencil is $0.50. Which of the following bundles
of books and pencils is UNAFFORDABLE?
A) 4 books and no pencils
B) 2 books and 30 pencils
C) 1 book and 20 pencils
D) 2 books and 20 pencils
Flu vaccines often provide both private benefits to individuals and positive external
benefits to other members of society. As a result, without government intervention one
would find:
A) too many doses of flu vaccine being produced, since external benefits would not be
considered.
B) too few doses of flu vaccine being produced, since external benefits would not be
considered.
C) the optimal amount of doses of flu vaccines being produced, since external benefits
would not be considered.
D) a shortage of doses of flu vaccine, because their marginal social benefit is
overestimated.
Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity
of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will
pay more of the tax?
A) Yacht builders will pay more.
B) Yacht buyers will pay more.
C) Yacht builders and buyers will pay equally.
D) It’s impossible to tell without additional information.
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand (using the midpoint formula) between $2.50 and $2.25?
A) 9
B) 19
C) 119
D) 0.5
Zoe’s Bakery operates in a perfectly competitive industry. When the market price of
iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average
total cost is $4, and her average variable cost is $3. Zoe’s marginal cost is _____, and
her short-run profits are _____.
A) $5; $150
B) $5; $300
C) $1; $150
D) $1; $300
Figure: Prisoners’ Dilemma for Thelma and Louise
(Figure: Prisoners’ Dilemma for Thelma and Louise) Look at the Figure Prisoners’
Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder.
Given the payoff matrix in the figure, the optimal behavior for Thelma and Louise to
minimize their joint sentence is for Thelma _____ and for Louise ____.
A) to confess; not to confess
B) to confess; to confess
C) not to confess; to confess
D) not to confess; not to confess
Diminishing marginal utility is the reason most indifference curves:
A) slope upward.
B) slope downward.
C) are vertical.
D) are horizontal.
A price ceiling is not effective if:
A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) it is set below the equilibrium price.
D) it creates a shortage.
(Table:
Production Possibilities Schedule I) Look at the table Production Possibilities Schedule
I. If the economy produces 24 units of capital goods per period, it also can produce at
most _____ units of consumer goods per period.
A) 5
B) 4
C) 3
D) 2
The _____ cost curve is NOT affected by diminishing returns.
A) average fixed
B) average variable
C) average total
D) marginal
People who want to reduce the risk they face may pay other people who are less
sensitive to risk to take on some of their risk. As a result:
A) a market for risk is illegal.
B) trade in risk reduces mutual gains.
C) total risk increases.
D) people who are willing to accept more risk will purchase from people who are less
willing.
(Table: Natasha’s Total Utility) Look at the table Natasha’s Total Utility. Natasha earns
$50,000 per year but faces losing $20,000 of it if she is late with her work. If there is a
25% probability that Natasha will be late with her work and her income will equal
$30,000, To guarantee an income of $50,000, Natasha would be willing to pay _____
for insurance.
A) $4,000
B) $5,000
C) $7,500
D) $9,500
Perfectly competitive industries are characterized by:
A) few sellers and many buyers.
B) consumers who can differentiate between products.
C) standardized goods.
D) a few producers who make up most of the market share of the industry.
To maximize profits, a firm will employ workers until for the last worker employed:
A) marginal product of labor is equal to the nominal wage rate.
B) the value of the marginal product of labor is equal to the wage rate.
C) the value of the marginal product of labor is equal to the price per unit of output.
D) the value of the marginal product of labor is as high as possible.
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 there’s a net _____ to total surplus of
_____.
A) addition; I + J + K+ L
B) addition; I + J + K
C) reduction; I + K
D) reduction; I + J + K + L
If ramen is a Giffen good and the price of ramen decreases:
A) the substitution effect will cause a decrease in the consumption of ramen.
B) the income effect will cause a decrease in the consumption of ramen.
C) the income effect will reinforce the substitution effect, and the consumption of
ramen will decrease.
D) the demand curve for ramen will still be downward-sloping.
If a firm in perfect competition sells 10 units of output at $5 per unit, its marginal
revenue is:
A) $5.
B) more than $5 but less than $50.
C) $50.
D) $250.