If a 6 percent increase in income leads to a 4 percent increase in quantity demanded for
audio books, the income elasticity of demand is
A) -0.67.
B) 67.
C) 5.
D)
An income tax system is ________ if marginal tax rates increase as income increases.
A) progressive
B) regressive
C) efficient
D) equitable
A public good is
A) a good that is rivalrous and excludable.
B) a good that is nonrivalrous and nonexcludable.
C) a good that is nonrivalrous and excludable.
D) a good that is rivalrous and nonexcludable.
Consider the following pieces of information:
a. According to Bonnie Reyes, president and chief operating officer of Better Investing,
a national organization of investment clubs, women have traditionally made up about
60 percent of the membership of investment clubs. By contrast, less than a third of
team-managed mutual funds on Wall Street have even one woman on the management
team.
b. Research conducted by professors E. Brooke Harrington and Max Planck concluded
that mixed investment clubs, on average, outperformed the typical single-sex
investment club.
c. The lack of gender diversity in Wall Street could be influenced by its reputation,
according to professor Harrington, “for being inhospitable to women.”
Source: Michael Hulbert, “Strategies: At some Funds, a Gender Communications
Gap,” The New York Times, October 7, 2007, Sunday Money, page 5.
The information presented is an example of
A) economic discrimination.
B) a negative feedback loop.
C) marginal productivity theory.
D) the absence of comparable worth.
Ordinarily, governments attempt to promote competition in markets. Why do
governments use patents to block entry into some markets when this prohibits
competition?
A) Patents encourage firms to spend money on research necessary to create new
products.
B) Politicians sometimes succumb to pressure from lobbyists to grant favors to
businesses for political reasons.
C) Patents are an important source of government revenue.
D) Patents are justified because they are an important means for creating network
externalities.
Figure 6-10
Refer to Figure 6-10. A unit-elastic supply curve is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
“For a given supply curve, the excess burden of a tax will be greater when the demand
for a product is less elastic than when the demand is more elastic.” This statement is
A) correct.
B) incorrect because the incidence of the tax, not the burden of the tax, is affected by
the elasticity of demand.
C) incorrect. When demand is less elastic, the burden of the tax is smaller than when the
demand is more elastic.
D) incorrect. The statement confuses demand with quantity demanded.
Since 1950 there has been a substantial increase in wheat production. The increase in
production has led to a decrease in the price of wheat because of which of the following
factors?
A) The absolute value of the price elasticity of demand for wheat is less than 1 and the
income elasticity of demand for wheat is greater than 1.
B) The absolute value of the price elasticity of demand for wheat is greater than 1 and
wheat is a close substitute for other food products.
C) The absolute value of the price elasticity of demand for wheat is less than 1 and the
income elasticity of demand for wheat is low.
D) The income elasticity of demand for wheat is high and wheat is an inferior good.
Figure 6-11
Refer to Figure 6-11. What is the value of the price elasticity of supply between g and
h?
A) 20 percent
B) 5
C) 2
D) 02
Many economists believe that when the federal government establishes an agency to
regulate a particular industry, the regulated firms try to influence the agency even if
these actions do not benefit the public. Economists refer to this result of government
regulation by which of the following terms?
A) regulatory capture
B) logrolling
C) special-interest regulation
D) the regulatory paradox
In December 2014, the average price of gasoline in the United States was $2.50 per
gallon and consumers bought 7 percent more gasoline than they had during April 2014,
when the average price was $3.60 per gallon. Based on these figures, from April 2014
to December 2014, the demand for gasoline was
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
Figure 13-4
Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive
firm in the market for designer watches.
Refer to Figure 13-4.What is the area that represents the loss made by the firm?
A) the area P0adP3
B) the area P1bcP2
C) the area P0acP2
D) the area P2cdP3
A normal rate of return refers to the ________ that investors must earn on the funds
they invest in a firm, expressed as a percentage of the amount invested.
A) minimum amount
B) maximum amount
C) total amount
D) profit
A perfectly competitive wheat farmer in a constant-cost industry produces 3,000
bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What
will happen to the market price of wheat in the long run?
A) The price remains constant at $15.
B) The price falls to $12.
C) The price rises above $15.
D) There is insufficient information to answer the question.
Joss is a marketing consultant. Iris and Daphne are potential customers interested in
commissioning Joss to undertake a market survey and compile the findings in a report.
Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose
that the opportunity cost of Joss’s time is $1,200. Assume that Iris and Daphne do not
know each other. Which of the following statements is true?
A) Joss should charge each customer $600; that way he will earn his opportunity cost
and it will be fair to both Iris and Daphne.
B) Joss should charge Iris $500 and Daphne no more than $700; that way he earns his
opportunity cost and there is no loss in economic surplus.
C) Joss should charge Iris $500 and Daphne $800; that way economic surplus is
maximized.
D) Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows
Joss to earn more than his opportunity cost.
A private good is
A) a good that is rivalrous and nonexcludable.
B) a good that is nonrivalrous and nonexcludable.
C) a good that is rivalrous and excludable.
D) a good that is nonrivalrous and excludable.
Which of the following items is likely to have the highest income elasticity of demand?
A) a bus ride
B) a meal at Taco Bell
C) a vacation home in the Swiss Alps
D) a tank of gasoline
The price of a seller’s product in perfect competition is determined by
A) the individual seller.
B) a few of the sellers.
C) market demand and market supply.
D) the individual demander.
Figure 4-1
Figure 4-1 shows Arnold’s demand curve for burritos.
Refer to Figure 4-1. Arnold’s marginal benefit from consuming the third burrito is
A) $1.25.
B) $1.50.
C) $2.50.
D) $6.00.
Who controls a partnership?
A) the owners
B) stockholders
C) bondholders
D) employees
According to a New York Times article, shoppers from New York City have played a
game of “retail arbitrage” by shopping at malls in Northern New Jersey, a state where
there is no tax on clothing and shoes. Even after accounting for transactions costs,
shoppers could still save money on their clothing and footwear purchases.
Source: Ken Belson and Nate Schweber, “Sales Tax Cut in City May Dim Allure of
Stores Across Hudson,” New York Times, January 18,
Is the term “arbitrage” correctly used here?
A) Yes, because shoppers were able to purchase items at lower prices even after
deducting their transactions costs.
B) No, “arbitrage” means buying at a low price and reselling at a higher price but no
resale takes place here.
C) Yes, arbitrage applies even if no resale takes place; in this case the profits are
pocketed by the customers themselves.
D) No, “arbitrage” does not apply to markets that are not in the same geographic area.
Economists have shown that the burden of a tax is the same whether the tax is collected
from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on
sellers?
A) Sellers are more honest than buyers.
B) The demand for both gasoline and cigarettes is very elastic.
C) The Equal Protection Clause of the U.S. Constitution prohibits the government from
imposing taxes like these on buyers.
D) It is more difficult for buyers to keep track of their purchases, and for the
government to verify that the right of amount of tax revenue is collected.
In the United States in 2012, the CDC estimated that the total number of people with
diabetes (both diagnosed and undiagnosed cases) was highest for people in the age
range of ________, and the percentage of people with diabetes was highest for people
in the age range of ________.
A) 20-44; 45-64
B) 45-64; 65 and older
C) 65 and older; 65 and older
D) 65 and older; 20-44
The difference between the ________ and the ________ from the sale of a product is
called producer surplus.
A) lowest price a firm would have been willing to accept; price it actually receives
B) highest price a firm would have been willing to accept; lowest price it was willing to
accept
C) cost to produce a product; price a firm actually receives
D) cost to produce a product; profit received
Table 18-1
Suppose $1 billion is available in the budget and Congress is considering allocating the
funds to one of the following three alternatives: 1) Subsidies for education, 2) Research
on Alzheimer’s or 3) Increased border security. Table 18-1 shows three voters’ rankings
of the alternatives.
Refer to Table 18-1. Suppose a series of votes are taken in which each pair of
alternatives is considered in turn. If the vote is between allocating funds to education
subsidies and increased border security
A) Ivy and Jasmine vote for education subsidies, Rose votes for increased border
security, and education subsidies wins.
B) Ivy and Rose vote for increased border security, Jasmine votes for education
subsidies, and increased border security wins.
C) Jasmine and Rose vote for education subsidies, Rose votes for increased border
security, and education subsidies wins.
D) Jasmine and Ivy vote for increased border security, Rose votes for education
subsidies, and increased border security wins.
All of the following are ways by which existing firms can deter the entry of new firms
into an industry except
A) continuously producing new and improved products.
B) earning less than maximum profit.
C) advertising products aggressively.
D) threatening to raise prices.
Identify the type of merger in each of the following situations and indicate how the
post-merger concentration ratio for the industry is affected.
a. A steel company merges with a coal and iron ore mining company.b. Staples, a
retailer of office supplies, acquires Office Depot, another retailer of office supplies.c.
An oil company merges with pipeline, shipping, and railroad companies as well as
refineries and gas stations.
If the average variable cost curve is above the marginal cost curve, then
A) marginal costs must be decreasing.
B) average variable costs must be increasing.
C) marginal costs must be increasing.
D) marginal costs can be either increasing or decreasing.
Assume that emissions from electric utilities contribute to pollution in the form of acid
rain. Which of the following describes how this affects the market for electricity?
A) The equilibrium in the market is not efficient; the marginal benefit from electricity is
greater than the marginal social cost.
B) A deadweight loss occurs; at equilibrium the additional social cost of production is
greater than the additional benefit to consumers.
C) The equilibrium in the market is not efficient; because of the cost of the acid rain,
economic efficiency would be greater if more electricity were produced.
D) The equilibrium in the market is not efficient; consumer surplus is equal to producer
surplus.
Table 16-2
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets
with demand schedules as shown in Table 16-2. The average cost of production is
constant at $2 per tube.
Refer to Table 16-2. What are the total profits from both markets combined?
A) $50
B) $48
C) $18
D) $15