Los Angeles International Airport (LAX) is located next to Playa Del Rey. The noise
from air traffic negatively affects individuals living in Playa Del Rey, however, this cost
is not considered by airlines or air travelers. The airlines feel they have a right to use the
airspace while the individuals living in Playa Del Rey feel they have the right to quiet.
The following diagram depicts the marginal costs and marginal benefits associated with
air travel.
Figure 16.5
Refer to Figure 16.5. The marginal damage cost ________ as the quantity of air travel
increases.
A) increases
B) decreases
C) remains constant
D) becomes negative
To conduct a general equilibrium analysis of a change in consumer preferences toward
coffee and away from tea, you must consider
A) changes in the equilibrium prices and quantities of coffee and tea.
B) changes in the amount of resources allocated to the production of coffee and tea.
C) changes in the price of resources allocated to the production of coffee and tea.
D) all of the above
Figure 3.16
Refer to Figure 3.16. The supply of curve for hula hoops shifts from S1 toS0. This could
be caused by
A) a decrease in the price of hula hoops.
B) a decrease in the number of firms selling hula hoops.
C) a decrease in the demand for hula hoops.
D) a decrease in the cost of producing hula hoops.
Related to the Economics in Practice on page 88: The initial price of $0 for the
Shakespeare in the Park tickets is akin to the city of New York ________ the tickets.
A) issuing a price floor on
B) issuing a price ceiling on
C) issuing ration coupons for
D) assigning favored customer status for
We can use macroeconomic analysis to
A) learn how to balance a checkbook.
B) study the choices made by households.
C) understand marginal changes in the macroeconomy.
D) understand why economies grow.
The ________ of labor in a perfectly competitive labor market is the market wage rate.
A) total cost
B) marginal revenue from a unit
C) marginal cost of a unit
D) supply
San Francisco International Airport (SFO) is located adjacent to the community of San
Bruno. The noise from air traffic negatively affects individuals living in San Bruno,
however, this cost is not considered by airlines or air travelers. The airlines feel they
have a right to use the airspace while the individuals living in San Bruno feel they have
the right to quiet. The following diagram depicts the marginal costs and marginal
benefits associated with air travel.
Figure 16.5
Refer to Figure 16.5. Suppose the government assigns property rights to the airlines,
and then the airlines and the residents engage in negotiations. The ________ of air
travel is 100 units.
A) minimum allowable level
B) resulting efficient level
C) government-regulated level
D) maximum allowable level
Sonia has $1,200 a month to spend on clothing and food. The price of clothing is $60
and the price of food is $10. The clothing and food pairs in Sonia’s choice set include
________ units of clothing and ________ units of food.
A) 20; 50
B) 15; 70
C) 10; 60
D) 0; 200
The freedom of individuals to start and operate private business in search of profits is
known as
A) laissez-faire.
B) free enterprise.
C) centralized decision making.
D) consumer sovereignty.
Figure 13.6
Refer to Figure 13.6. The Silver Exchange has a monopoly over the sale of solid silver
walking sticks. The Silver Exchange has hired you as an economic consultant. You
should advise this monopolist to
A) shut down in the short run and exit the industry in the long run.
B) produce in the short run and expand capacity in the long run.
C) produce in the short run but exit the industry in the long run.
D) shut down in the short run but expand capacity in the long run.
The policy in which industrial production is oriented towards foreign consumers is
called
A) import substitution.
B) export promotion.
C) export orientation.
D) import promotion.
You win a lottery that pays $10,000 each year for the next 5 years beginning next year.
How much are your winnings worth today?
A) $50,000
B) $45,455
C) $10,000
D) indeterminate with the given information
Figure 4.5
Refer to Figure 4.5. The price of CD-Rom drives in the United States would be $15 per
CD-Rom drive, and the United States would import 9 million CD-Rom drives if the
United States imposed ________ tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
An example of a ________ would be the government setting the price of coffee below
the equilibrium price.
A) non-income tax
B) rational expenditure
C) black market
D) price ceiling
________ are likely a fixed cost of a firm.
A) Wages paid to employees
B) The payments for supplies
C) Lease payments for office space
D) Travel expenses to meet with clients
Suppose that a normal rate of return in the economy is 10% and the rate of return being
earned by firms in a competitive industry equals exactly 10%. Which of the following is
a CORRECT prediction based on this information?
A) New firms will want to enter this industry, as the existing firms are earning an
economic profit.
B) Firms already in the industry will want to expand to try to increase their rate of
return.
C) Firms in the industry will not undertake any investment projects other than to
replace depreciating capital stock.
D) The industry size will contract.
Refer to the information provided in Figure 16.1 below to answer the questions that
follow.
Figure 1
Refer to Figure 16.1. The efficient amount of fertilizer is
A) zero because any level of production involves an external cost.
B) 50 bags.
C) 60 bags.
D) indeterminate from this information.
If the price of the product produced by labor increases, the marginal revenue product of
labor curve will
A) be unaffected because productivity of labor has not changed.
B) shift to the left.
C) shift to the right.
D) become more elastic.
In the short run when the marginal product of labor ________, the marginal cost of an
additional unit of output ________.
A) rises; rises
B) falls; rises
C) rises; doesn’t change
D) falls; falls
An activity that makes some people better off and nobody worse off is a
A) government transfer program such as Social Security.
B) reduction in interest rates.
C) price floor that increases income to suppliers.
D) voluntary exchange.
Figure 9.7
Refer to Figure 9.7. If MR = $7, then a profit maximizing firm will produce ________
units and earn a profit of ________.
A) 13; $0
B) 7; $0
C) 13; $91
D) 15; $30
A firm in a perfectly competitive market has no control over price because
A) the government imposes price ceilings on the products produced in perfectly
competitive industries.
B) there is free entry and exit from the industry.
C) every firm’s product is a perfect substitute for every other firm’s product.
D) the market demand for products produced in perfectly competitive industries is
perfectly elastic.
A policy in which ________ actively picks industries to support as a base for economic
development is known as industrial policy.
A) microfinancers
B) the World Bank
C) the International Monetary Fund
D) a government
If we know average total cost and the amount of output, then we can always calculate
total cost by ________ average total cost ________ the amount of output.
A) adding; and
B) subtracting; from
C) multiplying; by
D) dividing; by
An economy is not able to develop because of a lack of capital. Which of the following
strategies would you suggest this economy pursue?
A) lower interest rates
B) impose quotas on how much capital can be imported from other countries to reduce
dependency on foreign capital
C) increase the political stability of the economy
D) nationalize private enterprises because the government sector is not motivated by
profit maximization
Initially trade between the United States and Australia is balanced. Then, if a change in
the exchange rate reduces the U.S. dollar price of Australian goods, ceteris paribus, we
would expect
A) a trade deficit in the United States.
B) a trade surplus in Australia.
C) a trade deficit in Australia.
D) a trade deficit in both countries.
A colluding oligopoly will face market demand and produce up until the point at which
A) P = MR = MC.
B) P > MR = MC.
C) P < MR = MC.
D) P < MR > MC.
Figure 6.5
Refer to Figure 6.5. Molly’s budget constraint is AD. If her income decreases, her new
budget constraint is
A) CD.
B) BD.
C) EF.
D) not shown on this graph.
Which of the following is an element of a command economy?
A) The market decides distribution.
B) The means of production are privately owned.
C) Production decisions are centralized.
D) The market decides what will be produced.
Households’ ________ limit(s) firms’ ability to invest in capital.
A) investment in stock
B) savings decisions
C) supply of land
D) tax liability
Cashews are measured in bushels and tea is measured in pounds (lbs.)
Table 20.2
Refer to Table 20.2. ________ has a comparative advantage in tea and ________ has an
absolute advantage in tea.
A) India; neither
B) Neither; neither
C) Vietnam; neither
D) Vietnam; India
A radio signal broadcast through the air is ________ in consumption, and listeners are
________.
A) rival; excludable
B) nonrival; excludable
C) nonrival; nonexcludable
D) rival; nonexcludable
The table shows the relationship between income and utility for Sue.
Table 17.2
Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her
entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the
Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the
Patriots win, Sue will double her money ($80,000) but if they lose she loses her entire
salary ($0). Sue’s utility if she does not take the bet is ________ and her expected utility
from the bet is ________.
A) 40; 80
B) 40; 40
C) 40; 0
D) 80; 20
The main advantage of trade between two countries is that both countries move
________ their previous resource and production constraints.
A) back to
B) in from
C) out beyond
D) none of the above
Figure 3.11
Refer to Figure 3.11. Assume hamburgers and french fries are complements. A decrease
in the price of french fries will cause a movement from
A) Point A to Point B.
B) Point G to Point F.
C) D1 toD2.
D) S2 toS1 .