Figure 1-3
Refer to Figure 1-3. Calculate the area of the trapezoid X.
A) $270
B) $720
C) $810
D) $2,520
“A competitive market achieves economic efficiency by maximizing the sum of
consumer surplus and producer surplus.” This statement
A) is true only if there are positive externalities in production in the market.
B) is true only if there are no negative externalities in the market.
C) is true only if there are no positive or negative externalities in the market.
D) is true in theory, but economic efficiency cannot be achieved in a real market.
The International Nickel Company of Canada is often cited as an example of monopoly,
but International Nickel eventually lost its monopoly. What event was responsible for
this?
A) New technology allowed other firms to achieve network externalities after World
War II.
B) The Canadian government, which had owned International Nickel, sold the company
after World War II. The government no longer blocked entry into the market for nickel.
C) Competition in the market for nickel increased after nickel fields were developed in
Russia after World War II.
D) Competition in the market for nickel increased after Canada signed the North
American Free Trade Agreement with the United States and Mexico in 1994.
Figure 9-2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure
9-2 shows the impact of this tariff.
Refer to Figure 9-2. With the tariff in place, the United States
A) imports 16 million pounds of rice.
B) imports 9 million pounds of rice.
C) imports 15 million pounds of rice.
D) exports 31 million pounds of rice.
Economists assume that individuals
A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.
What happens to the absolute value of the marginal rate of substitution as you move
down a convex (bowed toward the origin) indifference curve?
A) It increases.
B) It decreases.
C) It remains constant.
D) It could increase or decrease.
What is the “omitted variable” problem in determining cause and effect?
A) It is a problem that arises when an insignificant variable is given too much weight in
an economic analysis leading to skewed conclusions about cause and effect.
B) It is a problem that arises when a significant variable is not given enough weight in
an economic experiment leading to skewed conclusions about cause and effect.
C) It is a problem that arises when an insignificant economic variable that should have
been omitted is included in an economic experiment leading to false conclusions about
cause and effect.
D) It is a problem that arises when an economic variable that affects other variables is
omitted from an analysis and its omission leads to false conclusions about cause and
effect.
Figure 11-13
Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of
labor is $50 per unit, what is the price of capital along the isocost CE?
A) $400 per unit
B) $100 per unit
C) $25 per unit
D) insufficient information to answer question
Figure 15-12
Figure 15-12 shows the cost and demand curves for a monopolist.
Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of
consumer surplus?
A) $21
B) $124
C) $186
D) $332
A demand curve that is horizontal indicates that the commodity
A) has few substitutes.
B) must be very cheap.
C) is a necessity.
D) has a large number of substitutes.
The slope of the indifference curve is referred to as
A) the marginal rate of substitution.
B) the price ratio.
C) the marginal rate of consumption.
D) the marginal tradeoff rate.
a. What is the difference between a horizontal merger and a vertical merger?
b. Give an example of each type of merger.
c. Could a horizontal merger be welfare improving?
An article in the Wall Street Journal noted the following: Instead of relying on a
full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los
Angeles …Continental [Airlines] since June has offered a $716 unrestricted fare in that
market …. Through October, the test resulted in about the same revenue that Continental
thinks it would have collected with its higher fare.
Source: Scott McCartney, “Airlines Try Cutting Business Fares, Find They Don’t Lose
Revenue,” Wall Street Journal, November 22, 2002.
What is the absolute value of the price elasticity of demand on this airline route?
A) 0
B) less than 1
C) greater than 1
D) approximately 1
The slope of a production possibilities frontier
A) has no economic relevance or meaning.
B) is always constant.
C) is always varying.
D) measures the opportunity cost of producing one more unit of a good.
Suppliers will be willing to supply a product only if
A) the price received is less than the additional cost of producing the product.
B) the price received is at least equal to the additional cost of producing the product.
C) the price is higher than the average cost of producing the product.
D) the price received is at least double the additional cost of producing the product.
Figure 10-6
The above panels show various combinations of indifference curves and budget
constraints for two products: Popcorn and Candy.
Refer to Figure 10-6. A change in income is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) none of the above panels.
Sam Lewis owns a firm in New York City’s garment district. If Sam keeps adding
workers to use the same number of sewing machines, eventually the workplace will
become so crowded that workers will get in each other’s way. At this point
A) the marginal product of labor in Sam’s business would be negative and his total
output would decrease.
B) Sam should encourage his workers to share their sewing machines.
C) Sam’s business will be in violation of safety rules that have been established by the
New York City government.
D) Sam should begin using a division of labor in his business.
What is a secondary market?
A) a market where factory seconds and damaged merchandise are sold
B) a market where newly issued bonds are sold to initial buyers by the borrowing firm
C) a market where a newly issued stocks are sold to initial buyers by the borrowing
firm
D) a market where you can sell any stocks you own as a private investor
Which of the following criteria should be used to evaluate if government intervention in
a market for the purpose of environmental protection is justified?
A) Does the intervention program reduce pollution to zero using the least costly
method?
B) Is the intervention program economically efficient?
C) Does the intervention program make the amount of economic surplus as large as
possible?
D) Is the damage to the environment from government intervention as small as
possible?
Figure 3-5
Refer to Figure 3-5. At a price of $20
A) there would be a surplus of 8 units.
B) there would be a shortage of 8 units.
C) there would be a surplus of 0 units.
D) there would be a shortage of 4 units.
In theory, in the long run, monopolistically competitive firms earns zero profits.
However, in reality there are some ways by which a firm can avoid losing profits.
Which of the following is one such way?
A) gradually increase the mark-up on the goods produced
B) lower the price of its products to expand its market share
C) identify new markets and develop products precisely for those markets
D) find a market niche and keep it as narrow as possible so as to prevent other
producers from entering this market segment
In the long run, what happens to the demand curve facing a monopolistically
competitive firm that is earning short-run profits?
A) The demand curve will shift to the left and became more elastic.
B) The demand curve will shift to the left and became less elastic.
C) The demand curve will shift to the right and became more elastic.
D) The demand curve will shift to the right and became less elastic.
The phrase “demand has decreased” means that
A) a demand curve has shifted to the left.
B) there has been an upward movement along a demand curve.
C) there has been a downward movement along a demand curve.
D) a demand curve has shifted to the right.
When the coupon rate on newly issued bonds increases relative to older, outstanding
bonds, what happens?
A) The market price of the older bond falls in the secondary market.
B) The market price of the older bond rises in the secondary market.
C) Older bonds can still be sold at their face value.
D) Older bonds will sell for more than their face value.
Figure 4-8
Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this
market.
Refer to Figure 4-8. As a result of the tax, is there a loss in consumer surplus?
A) Yes, because consumers pay a price above the economically efficient price.
B) No, because the producer pays the tax.
C) No, because the market reaches a new equilibrium
D) No, because consumers are charged a lower price to cover their tax burden.
Table 18-1
Suppose $1 billion is available in the budget and Congress is considering allocating the
funds to one of the following three alternatives: 1) Subsidies for education, 2) Research
on Alzheimer’s or 3) Increased border security. Table 18-1 shows three voters’ rankings
of the alternatives.
Refer to Table 18-1. Suppose a series of votes are taken in which each pair of
alternatives is considered in turn. The first pair considered is between subsidies for
education and research on Alzheimer’s. The second pair considered is between
Alzheimer’s research and increased border security. The third pair considered is
between education subsidies and increased border security. In this case, the collective
preferences of the voters
A) turn out to be transitive and will yield a consistent outcome.
B) turn out to be transitive but will not result in a consistent outcome.
C) turn out not to be transitive and will not result in a consistent outcome.
D) turn out not to be transitive but will yield a consistent outcome.
To improve package delivery, one change UPS made involved taking better account of
weather forecasts to avoid delays in flying packages. This is an example of
A) positive technological change.
B) increasing marginal returns.
C) a reduction in fixed costs.
D) diseconomies of scale.
Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity
supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate
the price elasticity of supply.
A) 22
B) 0
C) 82
D) 07
Table 4-4
Table 4-4 shows the demand and supply schedules for the labor market in the city of
Pixley.
Refer to Table 4-4. If a minimum wage of $11.50 an hour is mandated, what is the
quantity of labor demanded?
A) 40,000
B) 570,000
C) 610,000
D) 1,180,000
In both monopolistically competitive and perfectly competitive industries
A) firms produce products for which there are no close substitutes.
B) there are high barriers to entry.
C) there are many buyers and sellers.
D) firms are price takers.
Inelastic supply occurs whenever the elasticity of supply value is
A) negative and < -1.
B) any positive number.
C) positive and > 1.
D) positive and < 1.