Refer to Figure 12.8. If both firms follow their dominant strategies, Firm A will earn
profits equal to:
A) $500.
B) $700.
C) $200.
D) $100.
Suppose that people expect that the price of orange juice will rise next month. We
would predict that the equilibrium quantity of orange juice will ________ and the
equilibrium price of orange juice will ________ this month.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
Based on the Application, a ship captain will decide to sail a ship slower if:
A) the marginal benefit of a faster sail is less than the marginal cost.
B) the marginal benefit of a faster sail is more than the marginal cost.
C) the marginal benefit of a faster sail is equal than the marginal cost.
D) the marginal benefit of a faster sail is positive.
Government agencies often regulate the price natural monopolies charge because, if left
unregulated, natural monopolies will:
A) charge a price greater than average cost.
B) charge a price less than average cost.
C) charge a price equal to average cost.
D) face too many competitors.
Technological advances in pollution reduction:
A) reduce the demand for pollution permits.
B) increase the demand for pollution permits.
C) reduce the supply of pollution permits.
D) increase the supply of pollution permits.
Sellers of high-quality used goods are ________ likely to offer money-back guarantees
because ________.
A) more; buyers will not ask for their money back
B) less; buyers will be willing to purchase high-quality goods even without a guarantee
C) more; they are wealthier and so can afford to give money back
D) less; buyers consider guarantees to be a sign of an inferior good
Which of the following have economists and psychologists identified as types of
puzzling consumer behavior?
A) Spending choices sometimes depend on the source of income.
B) The willingness to pay for a product sometimes is affected by irrelevant information.
C) Product choices are sometimes influenced by irrelevant alternatives.
D) all of the above
Recall the application about imposing a tax on the carbon content of energy sources that
produce carbon dioxide. Which one of the following would NOT be a result of
imposing the carbon tax?
A) People would seek more energy efficient homes.
B) The quantity demanded of electricity would decrease.
C) People would drive less.
D) The price of electricity would decrease.
Why did the Application claim that Sam Walton “effectively ran an anti-poverty
program”?
A) because Walmart stocked its shelves with lower priced goods and services imported
from countries like China
B) because Walmart contributed heavily to the “Make a Wish Foundation”
C) because Walmart donated expired grocery items to the poor
D) because the tax generated from sales at Walmart is used to fund anti-poverty
programs
Applied to perfectly competitive labor markets, the marginal principle tells firms to hire
workers until:
A) marginal revenue product of the last worker hired equals the wage.
B) marginal productivity begins to diminish.
C) average total costs are minimized.
D) the price of the product equals the wage of the worker.
Which of the following is NOT a public good?
A) national defense
B) space exploration
C) a hamburger
D) levees
Refer to Figure 7.2. The marginal utility of the third video game rental is:
A) 1.
B) 3.
C) 4.
D) 22.
A possible reason a nation might impose a protectionist policy such as a tariff is to:
A) increase the level of imports.
B) protect an infant industry from foreign competitors.
C) encourage specialization in the good in which the nation has a comparative
advantage.
D) slow domestic production.
Recall the Application. Sirius and XM proposed the merger because they were:
A) losing money because their fixed costs were very high.
B) losing money because they faced the advertisers’ dilemma.
C) earning duopolists’ profits that were greater than zero, but knew they could earn
more as a single firm.
D) losing money because their variable costs were higher than the price they could
charge.
The price where the marginal benefit of search equals the marginal cost is called:
A) search price.
B) discovered price.
C) marginal price.
D) reservation price.
What distinguishes a public good from a private good?
A) Public goods are subject to the free-rider problem.
B) Private goods are never produced by the government.
C) Public goods are excludable, but nonrival.
D) Private goods will not be produced in private markets unless the government is
involved.
In a natural monopoly, the government will try to set the price at which the demand
curve intersects the monopolist’s:
A) long-run marginal revenue curve.
B) long-run marginal cost curve.
C) long-run average total cost curve.
D) long-run average fixed cost curve.
According to the Application about the market for meteorites, people in Morocco
bring meteorites picked up in the desert to local dealers, who then sell them to the
public through Websites. If the Moroccan government decided to intervene in this
market by requiring all meteorites be turned over to the government, and then the
government decides who is allowed to purchase the meteorites and at what prices, this
best describes an example of:
A) a market system.
B) central planning.
C) a barter economy.
D) comparative advantage.
If the firm has already reached the minimum efficient scale, then:
A) any additional output will not result in a lower long run average cost.
B) any additional output will result in a lower long run average cost.
C) additional output will result in a lower long run marginal cost.
D) the firm is profit maximizing in the long run.
The government allows firms to engage in price discrimination unless the practice:
A) allows the firm to earn positive economic profits.
B) reduces consumer surplus.
C) drives rival firms out of business.
D) increases prices to consumers.
Suppose that in a month the price of movie rentals increases from $2 to $2.20. At the
same time, the quantity of movie rentals supplied increases from 100 to 110. The price
elasticity of supply for movie rentals (calculated using the initial value formula) is:
A) negative.
B) inelastic.
C) unitary elastic.
D) elastic.
When a U.S. company shifts its call-center operations overseas to reduce costs, it is
applying the economic concept of:
A) thinking at the margin.
B) comparative advantage.
C) diminishing returns.
D) using assumptions to simplify.
The production possibilities curve represents the set of all:
A) feasible combinations of goods given that a nation’s resources are fully employed.
B) factors of production that can be used to manufacture goods and services.
C) combinations of goods and services that can be used in the production of other goods
and services.
D) nonlinear forms of production in the economy.
Refer to Table 17.1. Suppose that this year the wage rate is $30 and the price of the
good is $1. If the firm is maximizing profit ________ workers will be hired. Next year
the wage rate will increase to $40, but the price of the good will remain at $1. Then
________ workers will be hired.
Table 17.1
A) 6; 5
B) 6; 6
C) 7; 6
D) 5; 5
Among the roles of the government in a market economy is to:
A) enforce property rights.
B) own the means of production.
C) determine what is produced.
D) all of the above
Consider Figure 16.2, which depicts the supply and demand for coal. Assume coal
production creates external costs. If and are the equilibrium price and quantity of
coal without government regulation, a pollution tax on the production of coal would
________ the price of coal relative to and ________ the quantity of coal relative to
.
Figure 16.2
A) increase; decrease
B) increase; not change
C) decrease; not change
D) decrease; decrease
Suppose that the elasticity of supply is 0.60 and the price increases by 5%. We will
predict a percent increase in the quantity supplied of:
A) 8.33.
B) 12.
C) 3.
D) 6.
Suppose that in 2012 ABC Corp. produced 500 million units of a good at an average
cost of $2, and in 2013 ABC Corp. expanded its plant capacity and produced 600
million units at an average cost of $1.80. In this range, one can conclude that ABC
Corp. is experiencing:
A) economies of scale.
B) diseconomies of scale.
C) neither economies of scale or diseconomies of scale.
D) diminishing marginal product.
Suppose that Erin spends all of her income on two goods, pizza and fiction novels. If
the price of pizza rises then:
A) the current marginal utility per dollar spent on pizza will rise.
B) the current marginal utility per dollar spent on pizza will fall.
C) the current marginal utility per dollar spent on fiction novels will rise.
D) the current marginal utility per dollar spent on fiction novels will fall.
Suppose that Victoria and her friends are running a fundraiser by selling donuts. They
want to know what will happen to their revenue if they increase the price of each donut
from $0.80 to $1. What concept do they need to apply to find out their expected
revenue?
A) price elasticity of supply
B) price elasticity of demand
C) cross elasticity of demand
D) income elasticity of demand
Table 15.2 shows the preferred budget for a new civic center and the number of voters
in a community who prefer that budget. If Jay proposed $7 million while David
proposed $10 million, Jay will get ________ thousand votes while David gets
________ thousand votes.
Table 15.2
A) 32; 29
B) 46; 49
C) 52; 29
D) 51; 29
Spending money on a new car instead of a used car when you are on a fixed budget is
an example of:
A) the incursion of an opportunity cost.
B) isolating variables.
C) a bad thing to do because you run out of money.
D) living on the edge.
Recall the Application. After the merger of Sirius Satellite Radio and XM Satellite
Radio, the new firm, Sirius XM, would be classified as a:
A) natural monopoly.
B) monopoly, but not a natural monopoly.
C) public utility.
D) duopoly.