The marginal benefit of someone’s search depends on her/his discovered price.
Information goods such as a music video have an L-shaped average cost curve.
If marginal utility is positive consuming an additional unit of a product will cause total
utility to decline.
A U-shaped long-run average cost curve implies that a firm faces only diseconomies of
scale.
The opportunity cost of something is the gain you receive as a result of your sacrifice.
In a democracy, the median voter will tend to determine the quantities and types of
public goods produced.
If the cost of producing a product goes down, this will cause the equilibrium price of
the product to go down and the equilibrium quantity of the product to go up.
Consumers, not producers, gain from pollution abatement.
Government regulation of a natural monopoly causes its average cost curve to shift
downward.
The optimum level of pollution abatement is where the marginal benefit is greater than
the marginal cost.
Society gains from a patent if the product would not otherwise be developed.
The price elasticity of demand for business travel tends to be greater than that of leisure
travel.
If we are on the upper portion of the market demand curve and the price increases by
10%, the quantity demanded will decrease by more than 10%.
The amount of searching for low prices depends in part on the opportunity cost of
searching for the product.
Experience rating systems for pricing insurance are based on past medical bills of a
firm’s employees.
The short-run market supply curve shows the relationship between the market price and
the quantity supplied in the short run.
Excess supply in an unregulated market will cause the price of a product to fall.
Firms in monopolistic competition sell their products at a price equal to marginal cost.
The opportunity cost of an entrepreneur’s time is an explicit cost.
Recall the Application. Baseball teams know more about the health of free agent
pitchers than the pitchers themselves.
Monopolistically competitive industries have only a single firm and there is a barrier to
entry.
The government is not able to regulate the price that a monopolist charges because the
price is set by the market.
A command-and-control policy causes firms to use inefficient abatement technologies,
so production costs will be higher than they would be under a pollution tax.
Teenagers may benefit from minimum-wage laws.
Outsourcing occurs when a firm produces components of their good or service in
another country.
Slope is calculated as rise / run.
In a perfectly competitive market, an individual firm cannot charge any price it wants.
The equilibrium price under an import quota is below the price that occurs with free
trade.
For oligopolistic industries the demand is more elastic than demand facing
monopolistically competitive industries.
The cost of paying celebrities to advertise a product is always less than the increase in
profits.
If one variable falls the other variable falls, the two variables are positively related.
One method of responding to the lemons effect is to invest in information.
If a firm facing a linear demand curve experiences an increase in total revenue after
lowering the price:
A) the initial price was set at a point where the demand is inelastic.
B) the initial price was set at a point where the demand is elastic.
C) the new price is set where the demand is perfectly elastic.
D) the new price is set where the demand is perfectly inelastic.
Refer to Figure 6.2. If the price of a DVD rental is $4.00, consumer surplus will be $
________ each week.
A) 6.00
B) 4.00
C) 2.00
D) 12.00
Recall the Application about the decline in honeybee colonies and its effect on the
price of ice cream to answer the following question(s). In the last few years
thousands of honeybee colonies have vanished, a result of bee colony collapse
disorder (CCD). Roughly one third of the U.S. food supply–including a wide
variety of fruits, vegetables, and nuts–depends on pollination from bees. The
decline of honeybees threatens $15 billion worth of crops in the United States.
According to this Application, the decline in honeybee colonies has impacted the supply
curve for ice cream, shifting the supply curve to the ________ due to a(n) ________ in
production costs.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Figure 2.1
If you choose to produce only agricultural products, what is the maximum quantity you
can produce per year?
A) 200 tons
B) 400 tons
C) 600 tons
D) > 600 tons
In Table 14.2, Market 2 would be in equilibrium if buyers believed lemons account for:
Table 14.2
A) 55% of the market.
B) 65% of the market.
C) 70% of the market.
D) 80% of the market.
When firms discuss pricing strategies with each other:
A) it is a violation of antitrust laws.
B) it is not a violation of antitrust laws because laws cannot restrict free speech.
C) it is a violation of antitrust laws only if the discussion includes punishment
strategies.
D) it is a violation of antitrust laws only if some firms in the industry are excluded from
the discussion.
In the short run, the marginal cost of producing the first unit of output is $50, the
marginal cost of the second unit of output is $20, and the marginal cost of producing the
third unit of output is $16. The firm’s total cost of producing three units of output is:
A) $16.
B) $48.
C) $86.
D) cannot be determined from the information provided
At Carolina’s Bakery, the marginal products of the first, second,third, and fourth
workers are 15, 11, 8, and 6 cakes produced respectively. The total product of the first
three workers is:
A) 8.
B) 15.
C) 34.
D) 42.
Refer to Table 17.2. If the price of output is $2 per unit and the wage rate is $50, how
many workers should be hired?
Table 17.2
A) three workers
B) four workers
C) five workers
D) six workers
If labor productivity increases, the marginal revenue product curve will shift ________
and the profit maximizing quantity of labor demanded will ________.
A) up; increase
B) up; decrease
C) down; increase
D) down; decrease
In the short run, a firm in monopolistic competition operates much like a:
A) monopolist.
B) firm in perfect competition.
C) price taker.
D) all of the above
If the price of output increases the labor ________ curve shifts to the ________.
A) demand; left
B) demand; right
C) supply; left
D) supply; right
Figure 2.1
If you increase the production of farm goods, what other area is affected?
A) the price of produce
B) the production of manufactured goods
C) how much people can purchase
D) the wages earned by farm workers
In the Application, what did the Justice Department identify as the explanation for why
(illegal) drug prices have been dropping?
A) an increase in the supply
B) an increase in demand
C) a decrease in supply
D) a decrease in demand
Refer to Table 17.1. If the price of output is $2 per unit and we observe the firm hiring
six workers, if the firm is maximizing profit, the wage rate must be between ________
and ________.
Table 17.1
A) $20; $40
B) $30; $50
C) $40; $60
D) $500; $600
Refer to Table 7.1. The total utility of the five cups of coffee per day is:
Table 7.1
A) 70.
B) 80.
C) 90.
D) 75.
Under an average-cost pricing policy:
A) a regulatory agency picks a price equal to a natural monopoly’s marginal cost.
B) a regulatory agency picks a price equal to a natural monopoly’s average fixed cost.
C) a regulatory agency picks a price at which a natural monopoly’s demand curve
intersects its average cost curve.
D) firms earn economic profits greater than zero.
Recall the Application. Pitchers who switch teams ________ pitchers who do not
switch teams.
A) spend more time on the disabled list, on average, than
B) spend less time on the disabled list, on average, than
C) spend exactly the same amount of time on the disabled list as
D) are less injury-prone than
How is the price-change formula to predict the change in the equilibrium price resulting
from a change in demand calculated?
A) by dividing the percentage change in price by the sum of the price elasticities of
supply and demand
B) by dividing the percentage change in demand by the sum of the price elasticities of
supply and demand
C) by dividing the percentage change in supply by the sum of the price elasticities of
supply and demand
D) by dividing the percentage change in income by the sum of the price elasticities of
supply and demand
Which of the following is a more efficient way to lower pollution than a
command-and-control policy?
A) production subsidies
B) antitrust policy
C) marketable pollution permits
D) cost regulation
Which of the following is a problem that occurs with command-and-control policies?
A) lead to increased pollution
B) decrease the firm’s incentives to develop more efficient abatement technologies
C) An abatement technology that is efficient for one firm may be inefficient for others.
D) B and C are correct.
Refer to Figure 9.3. If the market price of soybeans falls to $8, then to maximize profits
this farmer should produce:
A) 200 bushels of soybeans.
B) 700 bushels of soybeans.
C) 1,000 bushels of soybeans.
D) a level of output that is indeterminate from this information.
Neuron activity in the insula represents the dollar cost of buying a product. Although
the mechanism that calibrates the insula has so far been elusive, we do know that the
________ the price of a product, the ________ the insula activity.
A) lower; stronger
B) higher; stronger
C) higher; weaker
D) none of the above
Suppose that a new study is released stating that consumption of orange juice (a
substitute for apple juice) reduces the risk of cancer and a major freeze destroys half of
the country’s apple crop. What happens to the price and quantity of apple juice?
A) The price of apple juice might rise or fall and the quantity of apple juice falls.
B) The price of apple juice might rise or fall and the quantity of apple juice rises.
C) The price of apple juice falls and the quantity of apple juice falls.
D) The quantity of apple juice might rise or fall and the price of apple juice rises.
Recall the Application. LoJack is system that allows the police to track stolen cars. Car
owners who do not buy LoJack systems still benefit because:
A) the owner of a LoJack system gets a break on his auto theft insurance.
B) the owners of LoJack earn profits.
C) thieves don’t know which cars have LoJack.
D) all of the above
The principle that “as one input increases while the other inputs are held fixed, output
beyond some point will exhibit increases at a decreasing rate” is known as the:
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.
________ are costs that require a monetary payment.
A) Implicit costs
B) Explicit costs
C) Accounting costs
D) B and C are correct.
Mental accounting simplifies the decision-making process because it:
A) limits the calculation of tradeoffs.
B) eliminates prices from the decision-making process.
C) values all purchases equally.
D) only weighs benefits and not costs.
In a market economy, what specifies the terms of exchange, facilitating exchange
between strangers?
A) contracts
B) insurance
C) patents
D) accounting rules
Average variable cost is defined as:
A) total variable cost divided by quantity.
B) quantity divided by total variable cost.
C) the change in total variable cost divided by the change in quantity.
D) the change in quantity divided by the change in total variable cost.
In Figure 12.6, airline Fly Smart is initially a secure monopoly between two cities X
and Y at point M, serving 300 passengers per day at the profit maximizing price of $300
per ticket. Suppose that Fly Smart discovers that a second airline is contemplating
entering the market. If the minimum market entry quantity is zero passenger per day,
what is Fly Smart’s profit when it commits to the entry-deterring quantity?
A) $60,000
B) $44,400
C) $33,600
D) $0
What is featherbedding and why do unions engage in the practice?
What is the dilemma of the advertisers’ dilemma?
What is a contestable market?
Will a price ceiling always result in a reduction in efficiency?
Explain the input-substitution effect and provide an example.
The cross elasticity between natural gas and heating oil is estimated to be 2.3. The cross
elasticity between natural gas and electricity is estimated to be -0.8. What is the
relationship between natural gas and heating oil? What is the relationship between
natural gas and electricity? Explain.
If the consumer gets 90 utils from consuming four movies, 120 utils from consuming
five movies and 140 utils from consuming six movies, calculate the consumer’s
marginal utility from the fifth and sixth movies.
Suppose that the price elasticity of demand for museum tickets is equal to 1.8. If the
price of a museum ticket rises by 30 percent, what will happen to quantity demanded?
Bars often offer specials on appetizers during “happy hour.” What does the concept of
price discrimination suggest about why this might be profit-maximizing behavior?
Why do college graduates earn higher wages than non-graduates?
Suppose you own a plum (high-quality) used car that you are thinking about selling.
Further, suppose you know that buyers assume that there is a 30% chance of getting a
plum, and that 8 of 10 cars currently in the used car market are lemons (low-quality).
Would you likely sell your car?
Why would a firm choose a lesser known celebrity in its advertising when more famous
celebrities are available?
What is dumping and why would firms engage in it?
Explain what would happen to the equilibrium price and quantity of pineapples if the
supply of pineapples decreased while the demand for pineapples increased.
Define the term “export.”
Comment on the following statement: “An increase in the wage always leads to an
increase in the quantity of labor supplied.”
Who is more likely to offer a money-back guarantee: a seller of a lemon or a seller of a
plum? Why?