Mr. Paque is a bear hunter for timber companies that want to diminish damage to trees
done by bears in the spring. Due to a reduction in the bear population between 1995 and
2005, Mr. Paque finds fewer bears each year and additional hours spent hunting
produce fewer additional bears. This means that Mr. Paque’s (i) overall productivity has
fallen; (ii) marginal product has fallen.
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
The economic rent analysis does not apply to any factor
a. except land.
b. whose supply curve is vertical.
c. whose supply curve is horizontal.
d. whose quantity supplied is fixed.
A price increase will always cause a firm’s revenue to fall, because they will sell less of
the good.
a. True
b. False
A vertical line has a slope of
a. infinity.
b. zero.
c. undefined.
d. 1,000.
At any given airport, the airlines hold long-term leases for passenger loading gates.
New gates cannot be added without approval of the airlines. Frequent flier programs are
also common in the industry. It is, therefore, more difficult for a new airline to enter a
given airport (market). Such factors:
(i) are called barriers to entry.
(ii) tend to decrease the contestability of the air travel market.
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
If the price of apples decreases by 2 percent and causes apple consumption to increase
by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.
a. 2, elastic
b. 2, inelastic
c. 0,5, elastic
d. 0,5, inelastic
Compared to a nonpoor individual, a poor individual is more likely to be
a. female.
b. black.
c. a child.
d. All of the above are correct.
Trusts were groups of firms that acted together to raise prices above competitive levels.
a. True
b. False
In an attempt to forecast enrollment, a major university hired an economist to give a
“head count.” One variable which she would probably emphasize more than any other
in trying to forecast this is
a. how interested people are in attending college.
b. the employment opportunities that college opens up.
c. survey results on public interest in education.
d. her instinct about what the public wants.
e. tuition (the price of attending).
The monetary return on a college education is considered economic rent.
a. True
b. False
Society definitely benefits by reducing the number of monopolistically competitive
firms.
a. True
b. False
If income redistribution policy is based on the relative concept of poverty, the war on
poverty
a. will be won quite soon.
b. is, by definition, unwinnable.
c. has not helped at all.
d. has already been won.
A profit-maximizing monopolist
a. is just as socially efficient as a perfectly competitive firm in allocating resources to
production since she, too, seeks the largest return on his investment.
b. produces an output level at which marginal utility exceeds marginal cost.
c. produces more output than a perfectly competitive industry.
d. always produces in the inelastic region of his demand curve.
There is no trade-off between efficiency and equality.
a. True
b. False
The concept of economic efficiency refers to the size of the “economic pie” whereas the
concept of equality refers to how the “pie” is distributed.
a. True
b. False
The total burden of a tax is the
a. absolute number of dollars an individual pays.
b. percentage of income a person pays.
c. number of dollars a person must be given after taxation to make him as well off as he
was before taxation.
d. revenue lost to loopholes.
Heavy advertising expenditures usually indicate
a. oligopoly.
b. pure competition or monopolistic competition.
c. oligopoly or monopoly.
d. differentiated pure competition or monopoly.
Figure 6-3
In Figure 6-3(b), as price falls from $15 to $6, total expenditure
a. falls.
b. increases.
c. remains constant.
d. first falls and then increases.
An article in The Economist reported that prices of CDs in Britain was much higher
than prices in the United States or other European countries. There were only a few
major companies, and a report from a Parliament committee said there was no serious
price competition. The best explanation for this is that
a. the industry was a contestable market.
b. there were entry barriers in production and distribution of CDs.
c. firms were avoiding profit opportunities.
d. there were substantial differentiation of product.
A market system solves the
a. “what” and “how” decisions but not the “to whom.”
b. “what” and “to whom” decisions but not the “how.”
c. “how” and “to whom” decisions but not the “what.”
d. “what,” “how,” and “to whom” decisions.
An example of a quota that protects an American industry is the quota on
a. tourists entering the country.
b. sugar imports.
c. sales of oil products to foreign countries.
d. purchases of military hardware to foreign dictators.
e. All of the above are examples of protective quotas.
The extent of discrimination is
a. measured by the differences in incomes.
b. the reason for two-thirds of the income differential between black male workers and
white male workers.
c. difficult to quantify and controversial.
d. easily measured for each category of workers.
Suppose the price of butter falls because milk price supports are removed. Will people’s
tastes shift away from margarine and toward butter?
Suppose demand can be described with the equation Q = 900 − 5P and supply with the
equation Q = 100 + 5P. Complete the following table. Determine the equilibrium price
and quantity.
Quantity Quantity Surplus/
Price Demanded Supplied Shortage
$100 _____ _____ _____
95 _____ _____ _____
90 _____ _____ _____
85 _____ _____ _____
80 _____ _____ _____
75 _____ _____ _____
70 _____ _____ _____
65 _____ _____ _____
60 _____ _____ _____
Draw a graph of a market in equilibrium. Describe what might cause a change in
demand or supply and how this would affect the diagram. Indicate how the equilibrium
price and quantity will change.
What is the shape of a perfectly elastic demand curve? Explain its significance for a
seller.
What are tax loopholes and what are their effects?
Differentiate between consumer’s surplus and producer’s surplus. For a rational
consumer, consumer’s surplus will never be a negative number. Why?
Why are sellers willing to sell more at a higher price?
Which oligopoly model leads to price rigidity? Graphically show why.
Given a demand curve, explain how total revenue may be calculated.