If a perfectly competitive firm is producing a quantity where P > MC, then the firm can
increase profit by:
A) making no change in output or price because it is already maximizing profit.
B) increasing the price.
C) decreasing the price.
D) increasing production.
(Table: Employment and Output) In the table Employment and Output, if the price of a
bushel of wheat is $10 and the price of labor (wage) is $120, then the profit-maximizing
quantity of labor is:
A) one.
B) three.
C) four.
D) six.
Figure: Seasonally Adjusted Unemployment Rate
(Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally
Adjusted Unemployment Rate. The distance between each labeled point on the
horizontal axis is one year. Unemployment was ______ between 1/2001 and 1/2002 and
______ between 1/1999 and 1/2000.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
Raina consumes 100% more mechanical pencils when the price of felt-tip pens
increases by 50%. For Raina, pencils and pens are _____, and the cross-price elasticity
of demand is _____.
A) complements; 0.5
B) substitutes; “0.5
C) complements; 2
D) substitutes; 2
Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the
cost of repairs. They face two possible states: in state 1 their cars need no repairs and
their income available for purchasing other goods and services is $50,000; in state 2
their cars need $10,000 worth of repairs and their income available for purchasing other
goods and services is reduced to $40,000. The probability of repairs is 10%, while the
probability of no repairs is 90%.
(Scenario: Choosing Insurance) Look at the scenario Choosing Insurance. The premium
on a fair insurance policy for the Ramirez family will be:
A) $0.
B) $900.
C) $1,000.
D) $2,000.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $4 and the wage rate is $160 per hour, the
profit-maximizing quantity of labor is _____ worker(s).
A) zero
B) one
C) three
D) five
The socially optimal amount of pollution occurs where the marginal social benefit of
pollution is _____ the marginal social cost of pollution.
A) equal to
B) greater than
C) less than
D) There is no socially optimal amount of pollution.
Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $60,000 tax on yachts and collects it from the consumers, the
_____ curve will shift _____ by _____.
A) supply; upward; $30,000
B) supply; upward; $60,000
C) demand; downward; $30,000
D) demand; downward; $60,000
(Table: Security in a Residential Community) Look at the table Security in a Residential
Community. The marginal cost of hiring the fourth security guard is _____, and the
marginal social benefit is _____.
A) $150; $200
B) $150; $100
C) $150; $600
D) $600; $1,900
The ability-to-pay principle says that:
A) the amount of tax paid depends on the measure of value.
B) those who benefit from public spending should bear the burden of the tax that pays
for that spending.
C) those with greater ability to pay should pay more tax.
D) those who benefit from the tax should pay the same percentage of the tax base as
those who do not benefit.
If a monopoly has a linear demand curve and is producing at the profit-maximizing
level of output, at that level of output, demand is:
A) price-elastic.
B) price-inelastic.
C) perfectly price-inelastic.
D) price unit-elastic.
The first trust in the United States was established by _____ in the _____ industry.
A) AT&T; communications
B) Walt Disney; entertainment
C) Amtrak; transportation
D) Standard Oil; petroleum
If the long-run market supply curve for a perfectly competitive market is horizontal,
then this industry exhibits _____ costs.
A) constant
B) decreasing
C) increasing
D) absence of marginal
(Table: Costs of Producing Bagels) Look at the table Cost of Producing Bagels. Average
total cost reaches its minimum value for the _____ bagel.
A) first
B) third
C) fourth
D) fifth
Figure: Short-Run Monopoly
(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The
profit-maximizing rule is satisfied by the intersection at point:
A) G.
B) H.
C) J.
D) L.
If the opportunity cost of manufacturing machinery is lower in the United States than in
Britain and the opportunity cost of manufacturing sweaters is higher in the United
States than in Britain, then the United States will:
A) export both sweaters and machinery to Britain.
B) import both sweaters and machinery from Britain.
C) export sweaters to Britain and import machinery from Britain.
D) import sweaters from Britain and export machinery to Britain.
Over the past 50 years in the United States, as a percentage of gross domestic product:
A) exports have grown and imports have remained constant.
B) imports have grown and exports have remained constant.
C) exports have decreased.
D) exports and imports have grown.
Figure: Supply of Coconuts
(Figure: Supply of Coconuts) Look at the figure Supply of Coconuts. An improvement
in the technology used to harvest coconuts (e.g., a faster, less expensive coconut picker)
would be represented in the figure as a movement from:
A) A to C.
B) B to A.
C) C to A.
D) B to E.
A perfectly competitive small organic farm produces 1,000 cauliflower heads in the
short run. Its ATC = $6 and AFC = $2. The market price is $3 per head and is equal to
MC. To maximize profits or minimize losses, this farm should:
A) increase output.
B) reduce output but continue to produce.
C) shut down.
D) do nothing; the firm is already maximizing profits.
Figure: Payoff Matrix II for Blue Spring and Purple Rain
(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue
Spring and Purple Rain describes two producers of bottled water. If both firms follow a
tit-for-tat strategy, equilibrium will be reached when:
A) both firms charge a high price.
B) both firms charge a low price.
C) Blue Spring charges a high price and Purple Rain charges a low price.
D) Purple Rain charges a high price and Blue Spring charges a low price.
America’s Gini coefficient is _____ than that of most _____.
A) higher; developing nations
B) higher; other wealthy nations
C) just a little lower; other wealthy nations
D) no lower; developing nations
A(n) _____ is excludable and rival in consumption.
A) private good
B) artificially scarce good
C) public good
D) common resource
The market equilibrium is found at the:
A) price where quantity demanded exceeds quantity supplied.
B) price where quantity demanded equals quantity supplied.
C) price where quantity supplied exceeds quantity demanded.
D) highest price the market will bear.
Using standard economic theory, Scientific Superconductors should continue hiring
workers until:
A) the marginal product of labor times price equals demand.
B) the quantity of labor supplied equals the quantity of labor demanded.
C) the marginal product of labor times price equals wage.
D) the marginal product of labor times wage equals price.
(Table: Cost Data) Look at the table Cost Data. When the purse factory produces 5 units
of output (purses):
A) marginal cost is above average total cost, and average total cost is rising.
B) average total cost is above average variable cost, and average variable cost is falling.
C) marginal cost is below average variable cost, and average variable cost is falling.
D) marginal cost is above average variable cost and below average total cost, and
average total cost is rising.
Specialization in production was the starting point for:
A) The Wealth of Nations, by Adam Smith.
B) The General Theory, by John Maynard Keynes.
C) Das Kapital, by Karl Marx.
D) Free to Choose, by Milton Friedman.
Figure: Consumer Surplus III
(Figure: Consumer Surplus III) In the figure Consumer Surplus III, when the price rises
from $30 to $35, consumer surplus _____ for a total consumer surplus of _____.
A) decreases by $15; $34
B) increases by $15; $64
C) increases by $25; $74
D) decreases by $5; $44
Government payments to individuals for which no good or service exchanged are:
A) spending.
B) purchases.
C) spending on goods and services.
D) transfer payments.
The U.S. income tax is _____, while the FICA tax is _____.
A) progressive; progressive
B) progressive; regressive
C) regressive; progressive
D) regressive; regressive