Some economists advocate government intervention in a market economy
A) to produce collective goods and services.
B) when resource costs for a private producer do not reflect the full cost to society.
C) to stabilize the economy.
D) all of the above
In a market system, self-interest motivates most people to
A) avoid paying insurance premiums.
B) remain self-sufficient.
C) provide products for other people.
D) rely on government central planning.
Figure 8.9
Refer to Figure 8.9. If the market price of hay falls to $18, then to maximize profits this
farmer should produce
A) 350 bales of hay.
B) 500 bales of hay.
C) 750 bales of hay.
D) a level of output that is indeterminate from this information.
The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for
producing 200 muffins are $350. If the bakery is earning a normal rate of return, then its
implicit costs must be
A) $0.
B) $50.
C) $350.
D) $400.
Figure 13.3
Refer to Figure 13.3. The marginal revenue of the sixth pound of cheese is
A) -$4.
B) -$1.
C) $1.
D) $4.
Investors put up $104,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 percent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable
costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc.
The restaurant charges $6 on average per meal.
The restaurant’s economic profit is
A) positive.
B) negative.
C) zero.
D) break-even.
Figure 16.2
Refer to Figure 16.2. What is the total damage imposed as a result of producing the
efficient level of fertilizer?
A) $0
B) $250
C) $350
D) $500
Figure 18.4
Refer to Figure 18.4. The second poorest fifth of families earned ________% of income
in Outland.
A) 5
B) 7
C) 12
D) 17
Figure 7.4
Refer to Figure 7.4. The average product of the third worker is
A) 10.
B) 14.
C) 30.
D) 126.
Juanita is spending her entire income on goods X and Y. Her marginal utility from the
last unit of X is 50 and the marginal utility from the last unit of Y that she consumes is
100. Juanita’s utility is only maximized if
A) the prices of X and Y are the same.
B) the price of good X is twice that of good Y.
C) the price of good Y is twice that of good X.
D) We cannot determine whether Juanita is maximizing her utility.
Figure 15.4
Refer to Figure 15.4. Assume the No-Sweat Sweatshirt Manufacturing Company has
fixed costs of $150 and is a monopolistically competitive firm. If the firm produces 50
personalized sweatshirts in the short run, it will
A) minimize profits.
B) minimize losses.
C) break even.
D) not cover any of its costs.
If an economy begins to use its resources more efficiently, it will move
A) closer to its ppf.
B) farther away from its ppf.
C) from a point along its ppf to a point outside its ppf.
D) from one point to another point along its ppf.
The production and use of capital
A) reduces the productivity of labor and decreases wages.
B) reduces the productivity of labor and drives up wages.
C) enhances the productivity of labor and drives up wages.
D) enhances the productivity of labor and decreases wages.
Geneva is spending her entire income on goods X and Y. Her marginal utility from the
last units of X and Y that she consumes is 36. Geneva’s utility is only maximized if
A) the prices of X and Y are the same.
B) the price of good X is twice that of good Y.
C) the price of good Y is twice that of good X.
D) We cannot determine whether Geneva is maximizing her utility.
Unemployment compensation is a ________ government transfer program.
A) state
B) federal
C) local
D) municipal
Figure 15.2
Refer to Figure 15.2. At We Do Hair, a monopolistically competitive firm, the
profit-maximizing price for a perm is
A) $32.
B) $28.
C) $24.
D) $20.
A firm produces 15 units of output from the last dollar it spends on labor and 10 units
from the last dollar spent on capital. The firm should
A) employ more labor and less capital.
B) employ more capital and less labor.
C) employ more capital and labor.
D) employ less capital and labor.
The Acme Motorcycle Company spends a lot of money for advertising designed to
convince you that their motorcycles are superior to all other motorcycles. If Acme is
successful, the demand for Acme motorcycles
A) and the demand for other firms motorcycles will become less price elastic.ʹ
B) and the demand for other firms motorcycles will become more price elastic.ʹ
C) will become more price elastic, but the demand for other firms motorcycles will ʹ
become less price elastic.
D) will become less price elastic, but the demand for other firms motorcycles will ʹ
become more price elastic.
The largest income redistribution program(s) in the United States is (are) the ________.
A) Social Security System
B) Public Assistance (Welfare) Program
C) Medicare and Medicaid Programs
D) Supplemental Security Income Program
A ________ is nonrival in consumption, and listeners are nonexcludable.
A) satellite radio signal
B) concert at a local indoor arena
C) radio signal broadcast through the air
D) lecture in your college’s auditorium
Table 6.1
Refer to Table 6.1. The total utility of five dozen oysters per day is
A) 152.
B) 160.
C) 192.
D) indeterminate from this information.
Assume the prices of labor and capital remain the same, but the average educational
level of workers decreases and therefore labor productivity decreases. This would lead a
firm to
A) use a more capital-intensive production technology.
B) use a more labor-intensive technology.
C) not change its production technology, but produce fewer units of output.
D) use only capital to produce the product.
Table 10.2
Refer to Table 10.2. If workers are paid $600 per day, then the firm is profit maximizing
when it hires ________ workers.
A) two
B) three
C) four
D) five
Figure 2.2
Refer to Figure 2.2. Full resource employment and production efficiency is represented
by a point
A) inside the production curve.
B) along the production curve.
C) outside the production curve.
D) either inside or along the production curve.
In the long run, a monopolistically competitive firm that is incurring a loss will shut
down if total revenue is less than ________ costs.
A) marginal
B) variable
C) average total
D) total
Economists believe that marginal tax rates ________ average tax rates.
A) have a smaller influence on behavior than
B) have a greater influence on behavior than
C) have the same influence on behavior as
D) have no influence on behavior, unlike
Figure 8.9
Refer to Figure 8.9. If this farmer is producing the profit maximizing level of output,
her profit is
A) $0.
B) $1,000.
C) $2,000.
D) $3,000.
An equal distribution of income would yield a Lorenz curve that is a ________.
A) line lying directly on the horizontal axis
B) line lying directly on the vertical axis at 0%
C) 45-degree line between 0 and 100%
D) line lying directly on the vertical axis at 100%
The ________ is a commonly used measure of the degree of inequality in an income
distribution.
A) Herfindahl-Hirschman index
B) Gini coefficient
C) Lorenz curve
D) utility possibility frontier
Which of the following is a characteristic that is associated with developing countries?
A) a high per capita GNP
B) high infant mortality rates
C) high life expectancy
D) an income distribution that is very close to being equal
A freely functioning market
A) will always be efficient.
B) will fairly reward talent and punish the lazy.
C) cannot be made more efficient with government intervention.
D) maximizes freedom of choice.
The price of circuit boards used in the manufacturing of LCD televisions has fallen.
This will lead to ________ LCD televisions.
A) an increase in the supply of
B) a decrease in the supply of
C) an increase in the quantity supplied of
D) a decrease in the quantity supplied of
The amount that ________ have accumulated out of past income through saving and
inheritance is wealth.
A) governments
B) households
C) markets
D) corporations
Table 11.2
Refer to Table 11.2. If the interest rate is 26%, then the farmer will engage in
investment of
A) $1,000,000.
B) $1,200,000.
C) $1,400,000.
D) $2,200,000.
Using Scenario 2 suppose Susan has eliminated two of the answers but is unsure of
which of the remaining three answers are correct. Determine whether it is rational for
Bill to guess.
Why might an oil cartel’s effectiveness be undermined during a recession but
strengthened during an economic boom?
Lentz’s Incorporated sells paper in a perfectly competitive market at a price of $2 per
ream. At the profit-maximizing (cost-minimizing) level of output, average total cost is
$2.50 per ream and average variable cost is $1.95 per ream. Should the firm continue to
operate in the short run? Explain.
Explain the argument for why taxing externalities is an economically legitimate
distortion.
AirTran, JetBlue, Southwest Airlines and Sun Country Airlines are generally referred to
as low-cost airlines. Why might this type of industry be used as an example of a
contestable market? Can you think of any reasons why this might not be a good
example of a contestable market?
Suppose that macaroni and cheese is an inferior good and the price of macaroni and
cheese rises. Explain the income and substitution effects of this price change.
Assume a desert island economy in which labor is the only scarce resource and labor
can be used to gather food (coconuts) or to build huts. There are six equally productive
individuals on the island. Each inhabitant can gather 25 coconuts in one day or build
one hut in one day.
What would have to occur for three huts to be produced along with 100 coconuts?
Lawyers Unlimited has a monopoly over its legal services in a small rural town. The
firm’s demand, marginal revenue, marginal cost, and average cost curves are shown
below. In spite of the fact that the ATC curve lies above the demand curve everywhere
how might this law firm still be able to make a normal or economic profit?
Patty’s Pizza Palace faces the following hourly cost schedule:
Fill in the column for marginal cost.
Comment on the following statement: “Input and output markets should be considered
separately because they operate independently of one another.”
Why is it that today it is more difficult to categorize countries into the three neat groups
like the one that were used in the 1960s.
A firm sells 150 units of output at a price of $8 each. The economic cost of producing
the 150 units of output is $1,000. Calculate the firm’s level of economic profit.
Why is the distinction between long run and short run less important in monopoly
markets?
What branch of economics involves the collection and use of data to test economic
theories? Why is this task often more difficult in economics than it is in physical
sciences?
The recent reduction in the price of oil has increased the demand for foreign
automobiles. Based on this statement, what may be concluded about price, cross-price,
or income elasticity of demand?