You are more likely to do-it-yourself than hire a plumber to repair a leaky drain pipe
a. as the tax rate on your earned income dramatically decreases
b. if the opportunity cost of your time decreases
c. the less knowledge and experience in plumbing repair work that you possess
d. if you already own the specialized tools required to complete the repair work
e. as the transaction cost of the do-it-yourself repair work increases
If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity
demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is
a. unit elastic
b. perfectly elastic
c. perfectly inelastic
d. relatively elastic
e. relatively inelastic
If a state government finances treatment facilities for alcoholics out of revenues from a
tax on liquor, it is
a. basing its taxation on ability to pay
b. levying a proportional tax
c. able to afford fewer treatment facilities when liquor sales decrease
d. discouraging alcoholics from seeking treatment at government facilities
e. providing a service that the private sector cannot provide
If a firm can borrow or lend at a 6 percent annual interest rate, it will
a. buy more capital if it has the funds on hand than if it has to borrow them
b. ignore the market rate of interest when making capital investment decisions
c. buy less capital if it has the funds on hand than if it has to borrow them
d. ignore the market rate of interest when making saving decisions
e. buy the same amount of capital whether it has the funds on hand or has to borrow
them
According to Coase, firms emerge when
a. transaction costs in the market are less than the cost of hierarchical control
b. transaction costs in the market are more than the cost of hierarchical control
c. prices in the market are less than the cost of hierarchical control
d. prices in the market are more than the cost of hierarchical control
e. implicit contracts in the market can be made explicit in a firm
Exhibit 13-4
Exhibit 13-4 shows data gathered by Memo Co. as it prepares to purchase personal
computers for its sales offices. Given the data in Exhibit 13-4, Memo Co.
a. must be a perfectly competitive seller of output
b. must be a monopoly seller of output
c. must be a perfectly competitive buyer of personal computers
d. cannot be a perfectly competitive buyer of personal computers
e. may or may not be a perfectly competitive buyer of personal computers
The term autarky refers to
a. equilibrium after trade begins between two countries
b. the gains received from trade
c. self-sufficiency
d. political isolationism
e. the recognition that mutually beneficial trade is not possible between two countries
The primary reason why individuals are willing to pay entrepreneurs to organize
production is
a. that they have to guarantee that the entrepreneur will make a profit
b. they avoid taxation when activities are organized by someone else
c. that it is better for businesses to pay taxes than individuals
d. that it reduces transaction costs
e. that entrepreneurs are more vulnerable in the case of the owner
Exhibit 8-18
Consider Exhibit 8-18. Assuming all of the firms are identical, how many firms are in
this industry?
a. 2,000
b. 2,500
c. 40
d. 50
e. 40 at P = $8; 50 at P = $12
Exhibit 10-11
Assume that the firm in Exhibit 10-11 maximizes profit. Its total revenue is
a. $5,200
b. $4,000
c. $3,600
d. $5,600
e. $3,200
Marginal revenue product is defined as
a. the total revenue generated by inputs
b. the additional output produced by one additional unit of a resource, other things
constant
c. the marginal revenue from each unit of output
d. the total revenue divided by the number of resources employed
e. the additional revenue generated by one additional unit of a resource, other things
constant
According to Coase, firms
a. exist because the entrepreneur must prevent shirking
b. should not exist
c. should not exist if all participants in a market have perfect information
d. exist because of the transaction costs of coordinating many resources through
markets
e. increase production costs and should therefore be limited
Prior to World War II, the international financial system had operated on
a. a floating exchange rate system
b. a managed exchange rate system
c. a laissez-faire exchange rate system
d. the gold standard
e. the dollar standard
A monopolist has complete control over both price and quantity of output.
a. True
b. False
A horizontal long-run industry supply curve occurs under conditions of
a. economies of scale
b. diseconomies of scale
c. monopoly
d. increasing costs
e. constant costs
As more pollution is abated, the total social benefit from pollution abatement increases.
a. True
b. False
The current international financial system is a managed float system.
a. True
b. False
The supply of foreign exchange to the United States is generated by the desire for
foreigners to acquire dollars for all except one of the following reasons. Which is the
exception?
a. The United States is considered a safe haven in times of political unrest.
b. The dollar has long been accepted as an international medium of exchange.
c. Foreigners want to buy U.S. assets.
d. U.S. goods have become less attractive to foreigners.
e. Foreigners wish to make cash gifts to family in the United States.
A good that is neither rival nor exclusive is called
a. a private good
b. a public good
c. a quasi-private good
d. an external good
e. an open access good
All other things constant, goods will have more __________ demand if their price uses
up a __________ proportion of a consumer’s budget.
a. price-elastic; greater
b. unit-elastic; smaller
c. price-elastic; smaller
d. price-inelastic; greater
e. stable; greater
If a union is able to increase the demand for union-made goods,
a. wages will increase but employment will decrease
b. wages will increase and employment will increase
c. wages will decrease but employment will increase
d. wages will decrease and employment will decrease
e. the demand for non-union labor will increase
Which of the four types of economic decision makers is most important?
a. firms, because they produce all goods and services in the economy
b. households, because they demand goods and services and supply resources
c. government, because it ultimately sets and enforces the “rules of the game”
d. government, because it steps in when there is market failure
e. the rest of the world, because there are over 150 countries
The economic system that includes private ownership of most resources and the
coordination of economic activity by price signals generated by market forces is
a. capitalism
b. socialism
c. communism
d. mercantilism
e. progressivism
On a straight-line production possibilities frontier, which of the following is true?
a. The problem of scarcity does not exist.
b. Resources are imperfect substitutes.
c. Opportunity costs are constant.
d. Technology is rapidly expanding.
e. Some resources are not being used efficiently.
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 reflect opportunity
cost of the resource completely?
a. panel (a)
b. panel (b)
c. panel (c)
d. panel (d)
e. panel (e)
If demand decreases, then quantity supplied will increase.
a. True
b. False
A metal-stamping factory moves next to a day care center. Noise from the factory
makes it impossible for the kids to nap. It would cost the factory $5 million to move; it
would cost $1 million for the day care center to move. Sound insulation for the factory
costs $1 million; insulation for the day care center costs $200,000. The court determines
that the day care center has the property right. What would be the optimal solution to
this problem?
a. The factory should install sound insulation because that is cheaper than moving.
b. The factory should pay the day care center to move.
c. The factory should buy insulation for the day care center.
d. The day care center should buy its own insulation.
e. The day care center should move.
A nation’s merchandise trade balance reflects
a. trade in tangible products
b. value of exports
c. value of imports
d. the same information as its balance of payments
e. trade in tangibles and intangibles
Oligopolistic industries consist of
a. a few independent firms
b. a few interdependent firms
c. many interdependent firms
d. many independent firms
e. a small monopoly
Exhibit 4-13
Refer to Exhibit 4-13. If the price increases from P to P”, the result will be a(n)
a. shortage
b. equilibrium
c. clearing of the market
d. surplus
e. excess quantity demanded
Exhibit 10-15
Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan”l Boone
Tobacco with respect to their decisions to advertise or not. Eagle Tobacco has a
dominant strategy.
a. True
b. False