The demand for meals at a local Applebee’s will shift to the left if:
A) the Olive Garden offers a 10 percent discount coupon in the local newspaper.
B) the price of a meal at Applebee’s rises.
C) local incomes increase and Applebee’s is a normal good.
D) the price of gasoline falls in the area.
The amount of tax levied per unit of good or service is called the tax:
A) incidence.
B) rate.
C) revenue.
D) surplus.
When an additional unit of a variable input adds less to total product than the previous
unit, the firm has:
A) increasing returns.
B) diminishing marginal returns.
C) diminishing total returns.
D) diminishing marginal returns and diminishing total returns.
(Table: Fish and Coconut Production Possibilities) The table shows the maximum
amount of fish and coconuts that Tom and Hank can produce if they produce only one
good. Tom produces and consumes nine fish and two coconuts, and Hank produces and
consumes three fish and two coconuts. Now they decide to engage in trade. Which of
the following statements is INCORRECT?
A) For both to become better off, each should specialize in the production of some
good. However, since Hank is equally productive in both goods, it doesn’t matter which
good each specializes in.
B) For both to become better off, each should specialize completely in the production of
the good in which he has a comparative advantage.
C) After trade it is possible for Tom to consume 9 fish and 2.5 coconuts and for Hank to
consume 3 fish and 2.5 coconuts.
D) For each individual, the consumption point after trade will lie outside that
individual’s production possibility frontier.
One of Jessuina’s New Year’s resolutions was to exercise more, so she bought an annual
membership to the gym that allows unlimited visits. Unfortunately, the gym is so
crowded and noisy that Jessuina leaves every day with a headache, without working out
at all. According to marginal analysis, Jessuina should:
A) continue using the gym for the year, since she has already paid for the membership.
B) join another gym only if a membership is cheaper at the new gym.
C) join another gym only if she can get a refund on her current membership.
D) stop using the gym.
Figure: Payoff Matrix I for Blue Spring and Purple Rain
(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Matrix I
for Blue Spring and Purple Rain refers to two producers of bottled water. Each has two
strategies available to it: a high price and a low price. The dominant strategy for Purple
Rain is to:
A) charge a low price.
B) charge a high price.
C) adopt the same strategy as Blue Spring.
D) Purple Rain does not have a dominant strategy.
Monopolistic competition in an industry results in:
A) overutilization of plants.
B) chronic excess capacity.
C) less advertising than in perfect competition.
D) lower prices than in perfect competition.
If the marginal social benefit received from a good is less than the marginal opportunity
cost of production:
A) an increase in production will improve society’s well-being.
B) a decrease in production will improve society’s well-being.
C) no change in production can improve society’s well-being.
D) the market is producing too little of the good.
Which of the following was NOT mentioned in the textbook as a possible factor in
increasing income inequality in the United States since 1968?
A) increases in immigration
B) growth in international trade
C) technological change
D) a reduction in the number of people attending college
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. Without government intervention, the amount of land dedicated
to the public park will be _____ acres.
A) 0
B) 1
C) 3
D) 9
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that
the crude oil industry is a duopoly and the marginal and fixed cost of producing crude
oil equals zero. Suppose that the two firms are maximizing industry profit and splitting
the profit evenly. If both firms decide to cheat and produce 10 more barrels each, firm
1’s profit will be _____, and firm 2’s profit will be _____.
A) $3,200; $3,200
B) $3,200; $3,000
C) $3,000; $3,200
D) $3,000; $3,000
Over the past several years, consumers have had an increasing interest in getting
tattoos. This means that the _____ for tattoos has _____.
A) quantity demanded; increased
B) demand; decreased
C) demand; increased
D) quantity demanded; decreased
Figure: Rita’s Time Allocation Budget Line
(Figure: Rita’s Time Allocation Budget Line) Look at the figure Rita’s Time Allocation
Budget Line. It is based on 80 hours available for labor and leisure. Rita chooses 40
hours of leisure and income of $280. When her hourly wage doubles, Rita chooses 30
hours of leisure and income of $700. The substitution effect is making her work _____,
the income effect is making her work _____, and the substitution effect is _____ than
the income effect.
A) more; less; stronger
B) less; more; stronger
C) more; less; weaker
D) less; more; weaker
Nonprice competition is more prevalent in an oligopoly when there is (are):
A) a Nash equilibrium.
B) complex products.
C) tacit collusion.
D) no product differentiations.
Figure: The Demand for Shirts
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand for the segment BC, by the midpoint method, is:
A) greater than 3.33.
B) 3.33.
C) 3.
D) 0.33.
Figure: The Market for Melons in Russia II
(Figure: The Markets for Melons in Russia II) Look at the figure The Market for
Melons in Russia II. If the world price is $10 and a tariff of $5 is imposed on this
market, the burden of the tariff will be borne by:
A) both producers and consumers.
B) consumers.
C) producers.
D) the government.
(Table: Producer Surplus and Phantom Tickets) The table Producer Surplus and
Phantom Tickets shows the minimum price at which each of the students is willing to
sell a ticket to Phantom of the Opera. Assume that each student has only one ticket to
sell. Given the information in the table, if these students can sell their Phantom tickets
for only $5, then:
A) Tim will be the only student not to sell his ticket.
B) Laura, Whitney, Ralph, and Rick will sell their tickets.
C) the total producer surplus for the five students will be $4.
D) the total producer surplus for the five students will be $330.
Tonya’s budget constraint for gasoline (G) and clothes (C) each month can be expressed
with the equation G = 100 ” 2C. If the price of clothing is $10, which of the following
consumption bundles lies INSIDE Tonya’s budget line?
A) 50 units of clothing and 100 units of gasoline
B) 50 units of clothing and 0 units of gasoline
C) 0 units of clothing and 100 units of gasoline
D) 10 units of clothing and 5 units of gasoline
Figure: The Profit-Maximizing Firm in the Short Run
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm. O is the _____ curve.
A) ATC
B) MR
C) MC
D) AVC
If a perfectly competitive firm increases production from 10 units to 11 units and the
market price is $20 per unit, total revenue for 11 units is:
A) $10.
B) $20.
C) $200.
D) $220.
Figure: Monopolistic Competition
(Figure: Monopolistic Competition) The firm in the figure Monopolistic Competition is
producing at the output level that maximizes profits (minimizes losses). The shaded
rectangle depicts the level of:
A) profit.
B) loss.
C) fixed cost.
D) variable cost.
The main difference between a tariff and an import quota is that:
A) an import quota reduces imports more sharply than a tariff.
B) a tariff will cause higher prices than an import quota.
C) a tariff generates tax revenue, while an import quota generates rents to the license
holders.
D) a tariff will cause lower prices than an import quota.
If the quantity demanded of agricultural output is very unresponsive to a fall in price,
the demand for agricultural output is:
A) price-elastic.
B) price-inelastic.
C) positively sloped.
D) horizontal.
Chuck spends all of his income on tacos and milkshakes. His income is $100, the price
of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and
milkshakes on the vertical axis. The vertical for Chuck’s budget line is _____
milkshakes.
A) 50
B) 10
C) 5
D) 100
A higher tax rate is more likely to increase tax revenue if the price elasticity of demand
is _____ and the price elasticity of supply is _____.
A) high; high
B) low; low
C) low; high
D) high; low
Which of the following is a factor of production at a college?
A) the faculty
B) lab concentrations to use in experiments
C) electricity
D) Scantron sheets
If a country removes a tariff on imported shoes, we expect the domestic price of shoes
to _____ and the quantity of shoes consumed in the domestic market to _____ .
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
Market failure occurs when:
A) prices of essential goods such as gas become very high.
B) individual actions have side effects that are not properly taken into account.
C) mutually beneficial trades take place.
D) a business declares bankruptcy.
An economic model:
A) is useful for explaining past economic conditions but not for predicting.
B) often leads to faulty conclusions because of the ceteris paribus assumption.
C) allows nothing to change in the economic situation that is being described.
D) is a simplified version of reality used to understand real-world economic conditions.
The infant industry argument for trade protection states that:
A) small, traditional industries such as handicrafts should be protected from foreign
competition or they would not be able to survive.
B) new industries should be protected from foreign competition until they become
established.
C) industries that provide day care for their employees’ children ought to be protected
from foreign competition.
D) industries that produce products essential for the well-being of infants (e.g., the baby
food industry) ought to be protected, since such products are essential for the good
health of future generations.
Figure: Profit Maximization in Monopolistic Competition
(Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure
Profit Maximization in Monopolistic Competition, the profit-maximizing price is P2
and the ATC curve is tangent to the new demand curve. The portion of the ATC that lies
to the right of the tangency and continues down to the intersection of MC with ATC
indicates:
A) that the firm is incurring an economic loss.
B) that the firm is earning an economic profit.
C) overutilization.
D) excess capacity.
The evidence suggests that federal taxes in the U.S. economy are:
A) regressive.
B) progressive.
C) higher than they’ve ever been before.
D) proportional.