Situation 32-1
In the early 1980s, the U.S. automobile industry managed to influence the government
to negotiate a voluntary export restraint agreement with Japan that was in effect from
1981 until 1985. The predictable result was an average increase in the price of Japanese
cars by about $1,000 and of U.S. cars by about $370. Also, as a result of the import
quotas, 26,000 new jobs were “created” in the U.S. automobile industry.
Which of the following arguments is least likely to have been used by the U.S. auto
industry to argue for import quotas?
a. If the quantity of low-priced import cars is not restricted, foreigners will overtake the
U.S. car market.
b. A healthy auto industry is vital to our national security.
c. If import quotas are in place, our profits will increase by about $300 per vehicle.
d. Japan is protecting its market, and so should we; all we want is a level playing field.
In general, electric, gas, and water companies are examples of __________monopolies.
a. unregulated
b. patent
c. natural
d. government
The foreign exchange market is the market in which
a. foreigners buy U.S. real estate.
b. foreign stocks and bonds are bought and sold.
c. ideas from different countries are exchanged.
d. currencies of different countries are bought and sold.
e. none of the above
If explicit costs equal $40,000, implicit costs equal $95,000, and accounting profit
equals $23,000, it follows that total revenue equals __________ and economic profit
equals __________.
a. $75,000; $17,000
b. $63,000; -$72,000
c. $68,000; $25,000
d. $22,000; -$68,000
e. There is not enough information given to answer this question.
Luck is more likely to influence incomes in the short run than in the long run.
a. True
b. False
The higher the opportunity cost of making a new friend, the more likely one is to make
a new friend,€ceteris paribus€.
a. True
b. False
Three persons, A, B, and C, will use a simple majority vote to determine whether some
good will be purchased. Each person’s “tax share” of the purchase price of the good will
be $25. Person A receives $30 worth of benefits from the good, person B receives $26
worth of benefits from the good, and person C receives $2 worth of benefits from the
good. It follows that __________ person(s) will vote for the good, __________
person(s) will vote against it, and that the outcome is __________.
a. one; two; inefficient
b. two; one; efficient
c. one; two; efficient
d. two; one; inefficient
A person has a comparative advantage in the production of a good when they can
produce the product at a(n) ________ opportunity cost compared to another person.
a. higher
b. increasing
c. lower
d. equal
Which of the following statements is false?
a. The monopolistic competitor is a price searcher.
b. The monopolistic competitor produces an output at which price is greater than
marginal cost.
c. The demand curve facing a monopolistic competitor is less elastic than the demand
curve facing a monopolist.
d. There are many substitutes in a monopolistic competitive industry.
Suppose that minimum efficient scale as a percentage of U.S. consumption is 5 percent
in industry X and it is 10 percent in industry Y. It follows that we would expect to find
a. fewer firms in industry Y than X.
b. fewer firms in industry X than Y.
c. bigger firms in industry Y than X.
d. bigger firms in industry X than Y.
e. none of the above