According to the Coase theorem, in order to solve a negative externality problem
efficiently,
a. the property right must be assigned to the party with the least-cost alternative
b. the property right must be assigned to the victim of pollution
c. transaction costs must be high
d. transaction costs must be low
e. property rights must be determined by the courts
The current account shows international transactions in goods and services, the capital
account shows international transactions involving the flow of financial assets, and the
official reserve transactions account shows movement of international reserves.
a. True
b. False
Exhibit 6-17
Consider Exhibit 6-17 which represents the market demand for DVDs. If the price of
DVDs increases from $20 to $25, what happens to consumer’s surplus?
a. nothing
b. decreases by $25
c. decreases by $17.50
d. increases by $17.50
e. increases by $25
Exhibit 1-1
Point b in Exhibit 1-1 represents
a. x = 30, y = 60
b. x = 60, y = 30
c. x + y = 60
d. x + y = 30
e. b = 90
Marginal revenue product of labor equals marginal product times the wage only when
the firm is a perfect competitor in the product market.
a. True
b. False
If a market is productively efficient,
a. the output is being produced at the lowest possible resource cost
b. the output is selling for the lowest possible price
c. economic profit in the market is positive
d. the output being produced is what consumers want
e. no firm can earn a normal profit
A firm in a perfectly competitive market
a. can raise the price of its product and sell more output
b. can lower the price of its product and sell more output
c. can increase its supply to lower the price
d. can decrease its supply to raise the price
e. accepts the market price for its product
Consider two resource markets in which the demand curves slope downward. In market
A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource
are hired. In market B, the supply curve is vertical, equilibrium price is $20, and 30
units of the resource are hired. Which of the following is true?
a. Total resource earnings are the same in both markets.
b. Total resource earnings are greater in market A.
c. Total resource earnings are greater in market B.
d. There is more economic rent in market A.
e. There is derived demand in market A, but not in market B.
Which of the following is not considered a barrier to entry?
a. economies of scale
b. patents
c. control of a scarce resource
d. licensing
e. perfect price discrimination
Imagine that the best and the brightest professionals of the planet Venus migrate to
Earth to work. The upside of this brain drain is
a. the remittances sent home to Venus
b. getting rid of snooty Venetians
c. not being able to afford the modern machinery that will help the Venetians become
more productive
d. decreased labor supply on Venus
e. increased income inequality on Venus
In perfect competition, each firm’s output is a large fraction of total market supply.
a. True
b. False
Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost
$12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million,
and the vertical (robot) intercept is 5 million. The slope of the isocost line is
a. -6.67
b. -2.4
c. -1.67
d. -60
e. -5.3
Carvel advertises a football-shaped ice cream cake for $7; you can buy a second one for
only $4. What do they know about consumer preferences?
a. Consumers would never buy a second ice cream cake.
b. Two cakes are worth less to the consumer than one.
c. Marginal utility of ice cream cakes diminishes.
d. Consumers only value the first cake at $4.
e. Consumers value all cakes they eat at $4.
Which of the following would be represented as a debit in the U.S. balance of
payments?
a. U.S. purchase of cars from Italy
b. U.S. sale of beef to Israel
c. U.S. government receives transfers from foreign governments to support U.S.
expenses incurred in Europe
d. U.S. residents receive gifts of money from friends abroad
e. income received by U.S. resident from overseas investment
Demand is elastic whenever
a. price elasticity has an absolute value of 1
b. price elasticity has an absolute value greater than 1
c. price elasticity has an absolute value less than 1
d. price elasticity is negative
e. consumers respond to a change in price
For a monopolist, as output expands, price and marginal revenue become more
divergent (i.e., are farther apart).
a. True
b. False
Under perfect price discrimination,
a. equilibrium quantity and consumer surplus are the same as under perfect competition
b. equilibrium quantity is greater and consumer surplus is the same as under perfect
competition
c. equilibrium quantity and consumer surplus are less than under perfect competition
d. equilibrium quantity is the same but consumer surplus is less than under perfect
competition
e. equilibrium quantity is less but consumer surplus is the same as under perfect
competition
If the government wishes to provide a natural monopolist with a “fair” rate of return, it
will force the firm to set
a. P = MC
b. P = AC
c. P = MR
d. P = AVC
e. MR = MC
A perfectly elastic supply curve
a. has no relevance, since real-world supply curves are never perfectly elastic
b. is a horizontal straight line
c. is a vertical straight line
d. is an upward-sloping straight line
e. is not a straight line
Which of the following is notnecessary in order for a firm to engage in price
discrimination?
a. The producer must face an inelastic demand curve.
b. The producer must face a downward-sloping demand curve.
c. There must be at least two identifiable classes of consumers with different price
elasticities of demand.
d. The producer must be able, at little cost, to distinguish between the different classes
of buyers.
e. It must be impossible for one buyer to resell to another.
Economic profits in a competitive industry are signals that
a. attract new firms into the industry
b. prevent firms from adopting newer technologies
c. encourage existing firms to continue to operate inefficiently
d. indicate that business conditions are improving
e. cause the industry’s resources to be used in lower valued uses
To serve the public interest, government sometimes promotes competition by breaking
up natural monopolies.
a. True
b. False
The Doha Round of talks led to a widely accepted agreement on international trade
issues.
a. True
b. False
Which of the following is an example of featherbedding?
a. a craft union’s restricting entry into its profession
b. a union-imposed wage floor
c. an increase in labor productivity that results from a decrease in quit rates
d. attempts to reduce the sale of nonunion goods
e. a construction workers union’s requiring an unnecessarily large number of workers to
do a particular job
Exhibit 13-4
Exhibit 13-4 shows data gathered by Memo Co. as it prepares to purchase personal
computers for its sales offices. Assume that the personal computers are expected to last
indefinitely, that operating expenses are negligible, and that the price of Memo’s output
is expected to remain constant in the future. As the number of personal computers
Memo Co. might purchase increases to 120, the marginal rate of return on that kind of
capital will
a. decrease from 24 percent and eventually become negative
b. rise from 24 percent
c. decrease from 24 percent but never become negative
d. remain constant because the price of personal computers is constant
e. remain constant because the increments being considered are constant
For a perfectly competitive firm that should continue to operate in the short run, loss is
minimized where
a. MR is maximized
b. MR = MC
c. P < MC
d. MR < MC
e. MR > ATC
The substitution effect of a decrease in the wage rate causes the quantity of labor
supplied to
a. increase
b. increase only if the individual desires more leisure time
c. increase only if the substitution effect outweighs the income effect
d. decrease
e. decrease only if the individual lowers the value of leisure time
Most of the Superfund has been spent on
a. education of the public on environmental issues
b. research
c. court costs and legal fees
d. cleanup and rehabilitation of polluted areas
e. development and installation of antipollution devices
Suppose a market is in equilibrium and then a price floor is established below the
equilibrium price. Which of the following will happen?
a. quantity demanded will increase
b. a surplus will develop
c. a shortage will develop
d. the quantity sold will rise
e. the market will remain in equilibrium
The rate at which two countries trade one good for another
a. is known as the foreign exchange rate
b. is known as the terms of trade
c. is known as the export line
d. equals the slope of the import line
e. equals the common slope of the countries’ production possibilities frontiers