Joe’s budget line reflects the _____ available to Joe if he spends _____ of his income.
A) consumption bundles; all
B) consumption bundles; part
C) utility; all
D) utility; part
Figure: Supply of Coconuts
(Figure: Supply of Coconuts) Look at the figure Supply of Coconuts. If the prices of
inputs (e.g., labor, fertilizer, and fuel) used to produce and transport coconuts decreased,
it would be represented in the figure as a movement from:
A) A to B.
B) B to A.
C) C to A.
D) E to B.
Efficiency addresses the best way to achieve a goal once it has been determined.
Brad spends all of his income on cameras and coffee. He is purchasing the consumption
bundle that maximizes his utility given his budget constraint. At the optimal
consumption bundle, which of the following statements is CORRECT?
A) If cameras cost more than coffee, then the marginal utility of cameras is less than
that of coffee.
B) If cameras cost less than coffee, then the marginal utility of cameras is more than
that of coffee.
C) If cameras cost the same as coffee, then the marginal utility of cameras is equal to
that of coffee.
D) The prices of cameras and coffee and their marginal utilities are unrelated.
Suppose the Jamaican government sets coffee prices at $1 per pound, when the market
price is $10. The government’s actions will:
A) improve efficiency, since the low prices will force producers to find cheaper
production methods.
B) result in coffee surpluses even in a coffee-rich country.
C) cause coffee shortages even in a coffee-rich country.
D) improve equality between rich and poor, since the poor can now afford coffee.
(Table: The Utility of Macaroni and Cheese) Look at the table The Utility of Macaroni
and Cheese. Carmen loves macaroni and cheese for Thanksgiving. Carmen’s marginal
utility from eating macaroni becomes negative at the _____ serving.
A) first
B) second
C) fifth
D) sixth
Suppose the price of university sweatshirts increases from $10 to $20 and the quantity
supplied increases from 20 to 30. The price elasticity of supply, using the midpoint
formula, is:
A) 0.66.
B) 1.50.
C) 0.60.
D) 1.66.
A firm has hired the profit-maximizing number of workers when the wage is:
A) less than the price of the product.
B) greater than the average product of the last worker hired.
C) equal to the average product of the last worker hired.
D) equal to the value of the marginal product of labor of the last worker hired.
Assume that Colombia gives up three motorcycles for each ton of coffee it produces,
while Bolivia gives up seven motorcycles for each ton of coffee it produces. Colombia
has a comparative advantage in _____ production and should specialize in _____.
A) motorcycle; coffee
B) coffee; motorcycles
C) coffee; coffee
D) motorcycle; motorcycles
A public good is _____ and _____ in consumption.
A) excludable; rival
B) nonexcludable; nonrival
C) excludable; nonrival
D) nonexcludable; rival
Which of the following statements is TRUE?
A) A budget constraint limits what a poor consumer can spend, but there is no similar
constraint on rich people.
B) Utility maximization requires seeking the most utility from a given budget.
C) In consumer choice theory, we assume all goods and services are inferior.
D) The slope of the budget constraint depends on how much of each good is consumed.
The government can intervene to achieve the socially optimal quantity of a common
resource by:
A) assigning property rights.
B) imposing a tax on usage.
C) granting a limited number of tradable permits to use the good.
D) assigning property rights, imposing a tax on usage, and/or granting a limited number
of tradable permits to use the good.
An example of a common resource is:
A) coffee sold in coffee shops.
B) any type of public good.
C) any private good that is monopolized.
D) fishing in the ocean.
Rhonda would like a better bicycle, and she considers selling her old one by advertising
on the bulletin board in the student center. She decides against it because the used
bicycles listed on the board are underpriced. This describes the problem of:
A) adverse selection.
B) moral hazard.
C) positive correlation.
D) risk aversion.
Figure: Demand and Marginal Revenue
(Figure: Demand and Marginal Revenue) The figure Demand and Marginal Revenue
refers to a software upgrade. The producer incurred fixed costs of $10 million to
produce the upgrade; the marginal cost of allowing consumers to download the upgrade
is zero. To maximize profit, the producer will set a price of _____ and produce _____
upgrades.
A) $100; 125,000
B) $100; 250,000
C) $50; 125,000
D) $0; 250,000
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these
two producers have formed a cartel, agreed to split production of output evenly, and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, Margaret’s quantity effect will be a(n) _____ in profit of _____.
A) decrease; $100
B) increase; $100
C) increase; $300
D) decrease; $300
Freddy has eaten three corn dogs at the county fair, and if he eats another, he will get
sick on the roller coaster. Knowing this, and ignoring any impact that price might have
on his decision, we can say that at the fourth corn dog the:
A) total utility is less than zero.
B) marginal utility is less than zero.
C) total utility curve is still increasing.
D) marginal utility curve is still increasing.
Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If
Harley-Davidson raises the price of its motorcycles, we can expect:
A) a shift to the right in the supply curve of Hondas and lower prices for Hondas.
B) a shift to the left in the supply curve of Hondas and higher prices for Hondas.
C) a shift to the right in the demand curve for Hondas and higher prices for Hondas.
D) a shift to the left in the demand curve for Hondas and lower prices for Hondas.
Figure: The Indifference Curve Map II
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. If a new health report is released stating that there is a connection between
baby back rib dinners and heart attacks and this concerns Sara, each combination of
Cubs tickets and baby back ribs will now yield _____ for Sara.
A) less utility
B) more utility
C) the same level of utility
D) It is impossible to determine how Sara’s utility will be affected.
The long run is a planning period:
A) over which a firm can consider all inputs as variable.
B) of at least five years.
C) of more than six months.
D) of 6 months to 5 years.
If the price is above 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.
Figure: Comparing Long-Run Equilibriums
(Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run
Equilibriums, which of the following statements is FALSE?
A) The firm in panel (a) produces where price equals marginal cost and average total
cost.
B) The firm in panel (b) produces where price equals marginal cost.
C) The firm in panel (b) produces where price equals average cost.
D) The firm in panel (a) produces where price equals average cost.
Figure: Consumer Equilibrium III
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. The
highest level of total utility attainable is associated with point _____ on _____.
A) C; I3
B) E; I2
C) A; I2
D) B; I1
In the United States just after the turn of the twenty-first century, 70% of total income,
by far the largest share, took the form of:
A) compensation of employees.
B) corporate profits.
C) interest income.
D) rental income.
(Table: Tonya’s Production Function for Apples) Look at the table Tonya’s Production
Function for Apples. Tonya’s fixed:
A) input is land.
B) input is labor.
C) inputs are land and labor.
D) inputs are neither land nor labor.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price per cleared lot is $14,
how many lots should Alexa clear?
A) 0
B) 40
C) 50
D) 20
A tariff imposed on Japanese imports into the United States tends to _____ U.S.
producers and _____ Japanese producers.
A) penalize; benefit.
B) benefit; penalize
C) penalize; penalize
D) benefit; benefit
Economists may disagree about policies because they:
A) approach the issue using the same sets of values.
B) use different economic models.
C) enjoy disagreeing with each other.
D) only consider issues in positive economics.
Figure: The Value of the Marginal Product Curve
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if a technological advance makes labor more productive and
everything else stays the same, then the profit-maximizing quantity of labor:
A) will increase.
B) will decrease.
C) will stay the same.
D) cannot be determined.