The public choice model raises questions about the government’s ability to regulate
economic activity efficiently. Which of the following statements represents the views of
most economists with regard to the role of government?
A) Congress should abolish the Food and Drug Administration, the Environmental
Protection Agency, and other agencies and commissions because the costs of their
actions exceed the benefits they provide to the public.
B) Government should do more to regulate markets. The public choice model has
shown that rent seeking and rational ignorance affect more markets than are currently
subject to regulation.
C) U.S. citizens can afford more government regulation if the cost of this regulation is
borne mostly by taxpayers with the highest incomes.
D) Agencies such as the Food and Drug Administration and the Environmental
Protection Agency can serve a useful purpose, but we need to take the costs of
regulation into account along with the benefits.
Table 14-3
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far
more oil reserves and is the lower-cost producer compared to Nigeria. The payoff
matrix in Table 14-3 shows the profits earned per day by each country. “Low output”
corresponds to producing the OPEC assigned quota and “high output” corresponds to
producing the maximum capacity beyond the assigned quota.
Refer to Table 14-3. Is there a dominant strategy for Nigeria and, if so, what is it?
A) Yes, it has a dominant strategy depending on what Saudi Arabia does.
B) No, there is no dominant strategy.
C) Yes, the dominant strategy is to produce a low output.
D) Yes, the dominant strategy is to produce a high output.
At a product’s equilibrium price
A) the product’s demand curve is the same as the product’s supply curve.
B) the quantity of the product demanded is greater than the quantity of the product
supplied.
C) the quantity of the product demanded is less than the quantity of the product
supplied.
D) the product’s demand curve crosses the product’s supply curve.
Economists assume that rational behavior is useful in explaining choices people make
A) because irrational people do not make economic choices.
B) even though people may not behave rationally all the time.
C) because individuals act rationally all the time in all circumstances.
D) even though people rarely, if ever, behave in a rational manner.
The opportunity cost of taking a semester-long economics class is
A) the cost of tuition and fees only.
B) the value of the time spent in the classroom.
C) zero because there is no admission charged if you are enrolled in the course.
D) equal to the highest value of an alternative use of the time and money spent on the
class.
E) the knowledge and enjoyment you receive from attending the class.
Which of the following displays these two characteristics: nonrivalry and
nonexcludability in consumption?
A) public goods
B) private goods
C) quasi-public goods
D) common resources
If the marginal tax rate is less than the average tax rate as taxable income increases, the
tax structure is
A) regressive.
B) proportional.
C) progressive.
D) unfair.
Table 13-1
Refer to Table 13-1. The Table shows
A) an elastic segment of the demand schedule.
B) an inelastic segment of the demand schedule.
C) a demand schedule with an elastic segment from $7.50 to $6.50 followed by an
inelastic segment.
D) a demand schedule with an inelastic segment from $7.50 to $6.50 followed by an
elastic segment.
Which of the following is the best example of a tariff?
A) a subsidy from the U.S. government to domestic manufacturers of residential air
conditioners to enable them to compete more effectively with foreign producers
B) a limit on the quantity of residential air conditioners that can be imported from a
foreign country
C) a $150 fee imposed on all imported residential air conditioners
D) a tax placed on all residential air conditioners sold in the domestic market to help
offset the impact of emissions on the environment
Figure 11-11
Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture
frames. The graph also includes short-run average cost curves for three firm sizes:
ATCa, ATCb and ATCc.
Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of
output?
A) 10,000 workers
B) 5,000 picture frames
C) 20,000 picture frames
D) 10,000 picture frames
Figure 15-6
Figure 15-6 shows the cost and demand curves for a monopolist.
Refer to Figure 15-6. The profit-maximizing output and price for the monopolist are
A) output = 62; price = $24.
B) output = 62; price = $18.
C) output = 83; price = $22.
D) output = 104; price = $20.80.
As several eastern states began to legalize casino gambling, the revenues of casinos in
Atlantic City began to ________ and their profits ________.
A) rise; increased
B) rise; decreased
C) fall; decreased
D) fall; increased
Decision trees are commonly used to illustrate how firms make business decisions that
depend on the actions of rival firms. A decision tree has boxes that contain points that
represent when firms must make the decisions contained in the boxes. What are these
points called?
A) option points
B) decision nodes
C) either-or terminals
D) decision options
Figure 11-13
Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the
following shows an increase in the price of labor while the price of capital remains
unchanged?
A) the movement from AF to BD
B) the movement from AF to CE
C) the movement from BF to BD
D) the movement from BF to CE
You have an absolute advantage whenever you
A) are better educated than someone else.
B) can produce more of something than others with the same resources.
C) prefer to do one particular activity.
D) can produce something at a lower opportunity cost than others.
A monopolistically competitive firm that is earning profits will, in the long run,
experience all of the following except
A) new rivals entering the market.
B) a decrease in demand for its product.
C) demand for the firm’s product becomes more elastic.
D) a decrease in the number of rival products.
Jason, a high-school student, mows lawns for families in his neighborhood. The going
rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he
believes he has more experience mowing lawns than the many other teenagers who also
offer the same service. If the market for lawn mowing services is perfectly competitive,
what would happen if Jason raised his price?
A) He would lose some but not all his customers.
B) Initially, his customers might complain but over time they will come to accept the
new rate.
C) If Jason raises his price he would lose all his customers.
D) If Jason raises his price, then all others supplying the same service will also raise
their prices.
Which of the following is not an advantage of cost-plus pricing?
A) It is easy to calculate.
B) It requires little information.
C) If a firm is selling multiple products, it ensures that the firm’s prices will cover costs
that are difficult to assign to one product.
D) It ensures that the firm will maximize its profits.
Which of the following is an example of spending on factors of production in the
circular flow model?
A) Orson buys a package of beef jerky at a convenience store.
B) Bernadette gets a manicure and pedicure before attending her parents’ anniversary
party.
C) Landon pays $100 for a season pass to a water park.
D) The “Suds Bucket” car wash buys new squeegees for all its employees.
For a given supply curve, how does the elasticity of demand affect the burden of a tax
imposed on a product?
A) The excess burden of the tax will be minimized when the demand is unit elastic.
B) The excess burden of the tax will be greater when the elasticity of supply is greater
than the elasticity of demand.
C) The excess burden of the tax will be greater when the demand is less elastic than
when it is more elastic.
D) The excess burden of the tax will be greater when the demand is more elastic than
when it is less elastic.
Table 16-3
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the
demand for this service. Assume that each person surveyed demands only one hour of
pet sitting services per period. Table 16-3 above shows a portion of her survey results.
Refer to Table 16-3. Suppose Julie’s marginal cost of providing this service is constant
at $7 and she decides to charge each customer according to his or her willingness to
pay. What is Julie’s total revenue and how many hours of service will be purchased?
A) 4 hours and her total revenue = $39
B) 4 hours and her total revenue = $28
C) 1 hour and her total revenue = $7
D) 5 hours and her total revenue = $35
Article Summary
Several hotel companies have begun catering to pet owners by marketing their
pet-friendly policies to pet owners, creating pet-friendly rooms, and offering various
hospitality programs and amenities for pet lovers. Klimpton Hotels does not change
extra for pets of any size, offers room amenities such as pet beds, food and water bowls,
and provide information about pet-friendly attractions in the area. Choice Hotels has
over 3,000 pet-friendly locations worldwide and offers travel tips for pet owners. W
Hotels accepts pets less than 40 pounds, provides owners with information about local
dog parks, and also provides pet beds, food bowls, and ID tags for their 4-legged guests.
Travel sites such as TripAdvisor, Expedia, Travelocity, and PetFriendly.net are also
joining the trend by helping pet owners identify pet-friendly hotels and offering reviews
of various accommodations.
Source: Dave Spector, “Pet-Friendly Hotels Getting A Paw Up On The Competition,”
mediapost.com, November 24, 2014.
Refer to the Article Summary above. By marketing to pet owners, hotel companies like
Klimpton, Choice, and W are trying to set themselves apart from competing hotel
companies. This is an example of
A) defending a brand name.
B) blocking entry into the market.
C) legally enforcing a trademark.
D) product differentiation.
Gertrude Stork’s Chocolate Shoppe normally employs 4 workers. When the Chocolate
Shoppe hired a 5th worker the Shoppe’s total output decreased. Therefore,
A) the marginal product of the 5th worker is negative.
B) the total output of Gertrude Stork’s Chocolate Shoppe is negative.
C) the average product of the 5th worker is negative.
D) the 5th worker should be hired only if he is willing to accept a wage lower than the
wage paid to the other 4 workers.
An increase in a perfectly competitive firm’s demand for labor could be caused by
A) a decrease in the market wage rate.
B) an increase in the market demand for the firm’s product.
C) a decrease in the marginal product of workers.
D) an increase in the quantity of labor supplied.
Corporate governance involves the way in which
A) the government nationalizes corporations.
B) the government licenses corporations.
C) a corporation is subject to government regulations.
D) a corporation is structured.
Table 2-10
Table 2-10 shows the output per day of two pet groomers, Tammi and Horace. They can
either devote their time to grooming dogs or bathing cats.
Refer to Table 2-10. Which of the following statements is true?
A) Horace has a comparative advantage in both tasks.
B) Tammi has a comparative advantage in both tasks.
C) Horace has a comparative advantage in grooming dogs and Tammi in bathing cats.
D) Horace has a comparative advantage in bathing cats and Tammi in grooming dogs.
Firms do not have market power in which of the following market structures?
A) perfect competition only
B) perfect competition and monopolistic competition
C) oligopoly
D) monopoly
The people firms hire to attempt to convince state legislators and members of Congress
to pass laws that are favorable to the economic interests of the firms are called
A) economic advisors.
B) legislative assistants.
C) government bureaucrats.
D) lobbyists.
In the economic sense, almost everything is scarce. ________ of a good or service
occurs when the quantity demanded is greater than the quantity supplied at the current
market price.
A) Scarcity
B) A shortage
C) A surplus
D) An overstock
One method of setting price using the cost-plus method is to add
A) a given percentage of marginal cost to marginal cost of production.
B) a given percentage of fixed cost to total fixed cost.
C) a given percentage of average total cost to average total cost.
D) a given percentage of average variable cost to average total cost.
The Herfindahl-Hirschman Index is one factor used to determine whether a merger
between two firms should be allowed. Which of the following statements regarding the
value of the Index for a given industry is true?
A) If a merger would result in an Index value less than 1,000, the merger would not be
challenged.
B) If a merger would result in an Index value of 1,000 or more, the industry would be
considered a monopoly and the merger would be challenged.
C) If a merger resulted in an Index of between 1,000 and 1,800, the industry would be
considered competitive and the merger would not be challenged.
D) If a merger would increase the Index by 100, the industry would be considered a
monopoly and the merger would be challenged.
If Ewan is consuming his utility maximizing bundle and the price of one good falls,
what happens to the marginal utility per dollar spent on this good (MU/P), and what
should Ewan do?
A) MU/P has increased and Ewan should buy more of this good.
B) MU/P has increased and Ewan should buy less of this good.
C) MU/P has decreased and Ewan should buy more of this good.
D) MU/P has decreased and Ewan should buy less of this good.
Figure 16-5
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to practice
perfect price discrimination. What is the profit-maximizing price it will charge?
A) It should charge a range of prices from $40 to $16.
B) It should charge a range of prices from $40 to $12.
C) $2
D) $8
If you own a $1,000 face value bond with one year remaining to maturity and a 3
percent coupon rate and new bonds are paying 14 percent, what is the most you can get
for your old bond?
A) $903.51
B) $997.19
C) $1,000
D) $1,140
The study of how people make decisions in situations in which attaining their goals
depends on their interactions with others is called
A) game theory.
B) oligopoly.
C) competitive analysis.
D) strategic analysis.