Which of the following is NOT one of the four principles for understanding individual
choice?
A) Resources are scarce.
B) Overall spending sometimes gets out of line with the economy’s productive capacity.
C) “How much” is a decision at the margin.
D) People usually take advantage of opportunities to make themselves better off.
Recent research suggests that certain plastic containers may have cancer-causing
elements in them. As a result of this research, one would expect:
A) the demand for such containers to decrease.
B) the quantity demanded for such containers to increase.
C) no effect.
D) the price of the containers to change because of a movement along the demand
curve.
Economists use the term equilibrium to describe when:
A) individuals are equal.
B) no individual would be better off taking a different action.
C) no individual has an incentive to change his or her behavior.
D) no individual would be better off taking a different action or no individual has an
incentive to change his or her behavior.
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.50 and $1.25?
A) 1.00
B) 1.22
C) 1.50
D) 1.75
If marginal cost is greater than average total cost, then average total cost is:
A) at its maximum.
B) at its minimum.
C) increasing.
D) decreasing.
(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. If the Saints were a perfectly competitive firm in a perfectly competitive industry,
at their profit-maximizing price and output, consumer surplus would be:
A) $24.
B) $30.
C) $18.
D) $36.
It is certain that the equilibrium price will fall when:
A) the supply curve and the demand curve both shift to the right.
B) the supply curve shifts to the right and the demand curve shifts to the left.
C) supply and demand both increase.
D) supply decreases and demand stays the same.
Domingo has a total wealth of $500,000 composed of a house worth $100,000 and
$400,000 in cash. He keeps the cash in a safe deposit box, so that it is completely safe.
However, there is a 10% chance that his house will burn down by the end of the year
and be worth nothing and a 90% chance that nothing will happen to it. Without
insurance, the expected value of his end-of-year wealth is:
A) $410,000.
B) $450,000.
C) $490,000.
D) $485,000.
With tradable emissions permits, the price of the permit is determined by:
A) the government.
B) the supply of and demand for permits.
C) environmental protection organizations.
D) the World Trade Organization.
Which of the following is a common argument for trade protection?
A) national security
B) increased efficiency
C) increased profitability
D) increased productivity
If every individual were required to be self-sufficient:
A) living standards would fall.
B) living standards for some individuals would fall, but for others they would rise.
C) living standards would rise.
D) it’s impossible to say how living standards would change.
A backward-bending supply curve of labor shows that at relatively high wages the
_____ effect dominates the _____ effect, and the supply curve has a _____ slope.
A) income; substitution; positive
B) income; substitution; negative
C) substitution; income; positive
D) substitution; income; negative
Total revenue is a firm’s:
A) change in revenue resulting from a unit change in output.
B) ratio of revenue to quantity.
C) difference between revenue and cost.
D) total output times the price of that output.
Which is NOT an inefficiency caused by price floors?
A) inefficiently low quality
B) inefficient allocation of sales among sellers
C) wasted resources
D) illegal activity
Which of the following is NOT an example of price discrimination?
A) a Fourth of July sale
B) a coupon in the newspaper offering a 10% discount on a product
C) a higher price for front row seats at a concert than for seats at the back
D) a lower price charged to the grandfather who bought his airline ticket to Chicago
three weeks in advance and will stay over a Saturday night than to the businesswoman
who bought her ticket the day of the flight and will not stay over Saturday night
Which of the following does NOT describe OPEC?
A) OPEC is the Organization of Petroleum Exporting Countries.
B) OPEC is an international cartel made up of 12 oil-producing countries and two
unofficial members.
C) OPEC is the cartel that was responsible for the large increases in crude oil prices in
the 1970s.
D) OPEC is the name of the free-trade zone encompassing the Middle East and other
oil-producing nations.
The market for corn in Kansas is considered to be competitive. This means there are
_____ buyers and _____ sellers of corn in Kansas.
A) many; few
B) few; many
C) many; many
D) few; few
Which of the following groups has the HIGHEST median earnings in the U.S. labor
market?
A) White men
B) women, regardless of ethnicity
C) African Americans
D) Hispanics
Figure: Consumer Equilibrium I The figure shows three of Owen’s indifference
curves for pizza and soda per week. Owen has $180 per month to spend on the two
goods. The price of a pizza is $20, and the price of a soda is $1.50.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is
Owen’s optimal consumption bundle?
A) 4 pizzas and 150 sodas
B) 8 pizzas and 40 sodas
C) 6 pizzas and 40 sodas
D) 14 pizzas and 20 sodas
A principle suggesting that people with more income or wealth should pay more taxes
is the _____ principle.
A) ability-to-pay
B) regressive tax
C) progressive tax
D) benefits
Figure: Monopolistic Competition V
(Figure: Monopolistic Competition V) In the figure Monopolistic Competition V, in the
long run firms will:
A) enter this market until all firms earn zero economic profit.
B) exit this market until all remaining firms earn zero profit.
C) enter this market, leading to excess profit for all the firms.
D) exit this market, leading to excess profit for all the remaining firms.
Miss Marple spends her entire leisure time gardening. She values the marginal utility of
the last hour spent gardening at $17. She could earn $20 if she worked an additional
hour. Assuming that Miss Marple wants to maximize her utility, which of the following
is CORRECT?
A) She should spend more time gardening and less time working to balance the stress of
work with the relaxation provided by a hobby.
B) She should spend more time gardening and less time working, since leisure activities
are usually characterized by increasing marginal utility.
C) She should reallocate her time away from gardening and toward more work.
D) This question cannot be answered without knowing how many hours she spends
working and how many hours she spends gardening.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A) more than; an activity should be reduced
B) less than; an activity should be reduced
C) equal to; an activity is being produced at the optimal quantity
D) more than; net benefit is maximized
Economic profit is:
A) less than accounting profit if implicit costs exist.
B) always equal to accounting profit.
C) greater than accounting profit if implicit costs exist.
D) less than accounting profit if implicit costs are zero.
According to the Coase theorem, the private market can achieve an efficient outcome:
A) as long as the enforcement of property rights costs less than the marginal benefit of
emissions.
B) only if the property right to clean air is assigned to the polluter.
C) only if the property right to clean air is assigned to the party harmed by pollution.
D) if bargaining costs are low and property rights are well-defined.
Figure: The Market for Melons in Russia II
(Figure: The Markets for Melons in Russia II) Look at the figure The Market for
Melons in Russia II. As a result of a tariff that raises the world price from $10 to $15,
the country has a deadweight loss equal to:
A) $10.
B) $150.
C) $50.
D) $5.