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Gas prices recently increased by 25%. In response, purchases of gasoline decreased by
5%. According to this finding, the price elasticity of demand for gas is:
A) 5.
B) 2.
C) 0.2.
D) 0.5.
Governments continue to impose price controls. Which of the following is NOT a valid
reason for this?
A) Some people do benefit from such price controls.
B) People fear that prices will change dramatically if the price controls are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.
(Table: Price, Quantity Demanded, and Quantity Supplied) Look at the table Price,
Quantity Demanded, and Quantity Supplied. The slope of the line representing the
relation between price on the vertical axis and quantity supplied on the horizontal axis
is:
A) equal to 1/2.
B) equal to 1.
C) equal to 2.
D) different at different points on the line.
All of the following would result in an increase in the supply of a good EXCEPT:
A) a decrease in input prices.
B) a beneficial technological change.
C) an increase in the number of suppliers.
D) an increase in input prices.
(Table: Production Function for Soybeans) Look at the table Production Function for
Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which
have a combined cost of $150 per day. The cost of labor is $100 per worker per day.
The total cost of producing 60 bushels of soybeans is:
A) $150.
B) $450.
C) $750.
D) $900.
Figure: Bicycles and Radishes I
(Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows
production possibility frontiers for two countries that produce only radishes and
bicycles. The axes of the two graphs are measured in equivalent units. Country A is
operating at point M, and country B is operating at point N. Suppose country A
discovers a new technology that greatly increases its ability to produce bicycles but has
no effect on its ability to produce radishes. This would:
A) lower the opportunity cost of producing radishes in country A.
B) increase the opportunity cost of producing radishes in country A.
C) not affect the opportunity cost of producing radishes in country A.
D) increase the opportunity cost of producing radishes in country B.
The cost of leaving a championship soccer match before it ends is _____, while the cost
of staying for the entire match is _____.
A) the opportunity cost of not seeing the winning goal with two minutes to go; zerothe
ticket to the match is already paid so there is no cost
B) the opportunity cost of not seeing the winning goal with two minutes to go; the
opportunity cost of whatever else you could have done during that time
C) zeroyou don't have to pay to leave; zerothe ticket to the match is already paid, so
there is no cost
D) the cost of the ticket; the cost of the ticket
Figure: The Market for Tea in Sri Lanka
(Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri
Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises
to PW and the change in total surplus is:
A) I.
B) G + H + I.
C) G + H + I + J + K.
D) F + G + H + I + J + K.
Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $30,000 tax on yachts (collected from the producers), the price
of yachts will rise to _____ and the government will collect _____.
A) $100,000; $120 million
B) $120,000; $90 million
C) $140,000; $90 million
D) $160,000; $120 million
Figure: The Production Possibility Frontiers for Jackson and Tahoe
(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure
The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson
produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe
produces and consumes 80 head of cattle and 60 bushels of wheat. With complete
specialization according to comparative advantage, the two nations' combined
production of wheat will:
A) remain constant.
B) increase by 120 bushels.
C) increase by 60 bushels.
D) decrease by 60 bushels.
If you had a license for the exclusive right to sell breakfast bagels in your community,
your monopoly would result from:
A) control of a scarce resource or input.
B) technological superiority.
C) increasing returns to scale.
D) government-set barriers.
Figure: Marginal Social Cost and Supply
(Figure: Marginal Social Cost and Supply) Look at the figure Marginal Social Cost and
Supply. The marginal social cost curve lies above the supply curve:
A) because the marginal social benefit is greater for a common resource.
B) and the efficient quantity of this common resource is point E.
C) because the marginal social cost includes the cost of depleting this common
resource.
D) because this is a public good.
Whenever a choice is made:
A) the cost of that choice is opportunity cost.
B) the cost is easy to measure in dollar terms.
C) efficiency is improved.
D) scarcity is not the problem.
Scenario: Ben and Nick
Ben and Nick are the only members of a community. They have revealed the marginal
private benefits they each receive from a public good whose marginal social benefit is
known. In addition, the marginal social cost (MSC) of the public good is known and is
constant.
(Scenario: Ben and Nick) Look at the figure and scenario Ben and Nick. At all levels of
provision of the public good:
A) Ben places a higher value on the public good than Nick.
B) the MSC is less than the MSB.
C) the optimal level is not attained.
D) the private marginal benefits cannot be determined.
A tax system _____ when it minimizes the direct and indirect costs to the economy of
tax collection.
A) is efficient
B) is equitable
C) has no deadweight loss
D) is in equilibrium
Consumers in a particular market will bear the greater burden of an excise tax:
A) the more price-elastic supply is relative to demand.
B) the less price-elastic supply is relative to demand.
C) if supply has the same price elasticity as demand.
D) regardless of the price elasticity of demand or supply.
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They
are the only two firms in the industry and can either compete or cooperate with each
other, with the following profit results reflecting their actions.
(Scenario: Payoff Matrix for Two Firms) In the scenario Payoff Matrix for Two Firms,
if both firms pursue their dominant strategies:
A) their joint profits are maximized.
B) their joint profits are not maximized.
C) their joint profits reflect an equal sharing of the total profits.
D) neither can attain its largest possible profits, since there are two dominant strategies
for each firm.
Karen consumes gasoline and other goods. A new excise tax on gasoline raises the
price. However, the government pays Karen an income subsidy that is just enough for
her to stay on her original (pretax) indifference curve. Her new optimal consumption
bundle will have:
A) the same amount of both goods as before.
B) less gas and more of other goods.
C) less of other goods and more gas.
D) This question can't be answered, since some essential information (such as Karen's
income and the pretax and taxed prices of gas) is missing.
_____ is the unwritten or unspoken agreement through which firms limit _____.
A) A satisfying agreement; price increases
B) Tacit collusion; competition among themselves
C) Overt collusion; competition among rivals
D) A cartel; price changes
For a perfectly competitive firm in the short run, if the firm produces the quantity at
which _____, the firm _____.
A) P > ATC; is profitable
B) P < ATC; breaks even
C) P = ATC; incurs a loss
D) P < ATC; is profitable
Louis has invested $1,000 in the stock market. At the end of one year, there is a 30%
chance that his stock will be worth only $800 and a 70% chance that it will be worth
$1,200. The expected value of his stock at the end of one year is:
A) $1,000.
B) $1,080.
C) $1,200.
D) $1,160.
Figure: Monopolistic Competition III
(Figure: Monopolistic Competition III) The figure Monopolistic Competition III shows
the demand, marginal revenue, marginal cost, and average total cost curves for Pat's
Pizza Parlor, a monopolistic competitor in the food-to-go industry. In the long run, the
demand curve for Pat's Pizza Parlor will shift to the _____ as competitors _____ the
market.
A) right; enter
B) right; leave
C) left; enter
D) left; leave
For economists, the satisfaction an individual derives from the consumption of goods
and services is best described as:
A) happiness.
B) usefulness.
C) utility.
D) opportunity cost.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. Based on this information, _____ has the absolute advantage in
making brownies and _____ has the absolute advantage in making cookies.
A) Mark; Julie
B) Mark; Mark
C) Julie; Mark
D) Mark; neither Mark nor Julie
Figure: The DVD Rental Market
(Figure: The DVD Rental Market) Look at the figure The DVD Rental Market. The
figure shows the weekend rental market for DVDs in Collegetown. The equilibrium
price for DVD rentals is _____ and the equilibrium quantity is _____.
A) $5; 50
B) $3; 30
C) $9; 90
D) $6; 40
Figure: The Profit-Maximizing Output and Price
(Figure: The Profit-Maximizing Output and Price) Look at the figure The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC =
MC = $200. At the profit-maximizing output and price for a monopolist, deadweight
loss is:
A) $3,200.
B) $6,400.
C) $1,000.
D) $1,600.
A monopoly is producing output so that average total cost is $30, marginal revenue is
$40, and the price is $50. If ATC is at its minimum level and the ATC curve is
U-shaped, to maximize profits this firm should:
A) increase output.
B) reduce output.
C) do nothing; it is already maximizing profits.
D) shut down.
Compared to other countries of comparable wealth, the United States has:
A) unusually high poverty rates.
B) similar levels of poverty.
C) relatively low levels of poverty.
D) low levels of poverty only when relative measures of poverty are used.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the third sweatshirt is:
A) $33.
B) $13.
C) $11.
D) $9.
If the price is below the equilibrium price in the market for grapefruit, assuming a
positively sloped supply curve and a negatively sloped demand curve, total surplus:
A) will increase.
B) will decrease.
C) will not change.
D) may change, but we cannot determine the change without more information.
Lucy bought some stock 10 years ago that has been priced at half of her purchase price
for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits
long enough, she will recover her investment. What type of behavior does this
represent?
A) mental accounting
B) bounded rationality
C) risk aversion
D) loss aversion
Figure: MSB and MSC of Pollution
(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution.
What level of pollution represents the socially optimal level?
A) Q1
B) Q2
C) Q3
D) Q4
