The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent
of the world’s proven oil reserves. Economists refer to OPEC as a cartel because
A) OPEC is a monopoly, but it is located outside of the boundaries of any one country.
This is the definition of a cartel.
B) this is the term used for an oligopoly that is controlled by national governments
rather than private firms.
C) it is a group of firms that collude to restrict output to increase prices and profits.
D) this is the term economists use to describe an oligopoly that sells a standardized
product, such as oil, rather than a differentiated product, such as automobiles.
Why is a dollar today more valuable than a dollar a year from now?
A) The dollar today can be immediately used to buy something.
B) A dollar a year from now will likely have less purchasing power because of inflation.
C) The unknown future is riskier than the known present.
D) all of the above
If the quantity of donuts supplied is represented by the equation QS = -15 + 5P then the
corresponding price of donuts is represented by the equation
A) P = 0.2QS + 3.
B) P = 5QS + 75.
C) P = QS – 7.5.
D) P = 15 – 0.5QS
.
OPEC periodically meets to agree to restrict the cartel’s oil output, and yet almost every
member of OPEC produces more than its own output quota. This suggests that OPEC
has
A) a cooperative equilibrium.
B) a noncooperative equilibrium.
C) new potential entrants.
D) a threat of substitute goods.
Perfect price discrimination is also known as
A) monopoly.
B) first-degree price discrimination.
C) third-degree price discrimination.
D) yield management.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. Prior to trade, what was the opportunity cost to produce 1 clock in
Belize?
A) 1/6 of a hat
B) 2/3 of a hat
C) 5 hats
D) 6 hats
Which of the following is an example of the U.S. government’s use of a
“command-and-control” approach to reducing pollution?
A) In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to
8.5 million tons annually by 2010.
B) The U.S. government imposed a tax on electric utilities to reduce damages from acid
rain.
C) The government issued electric utilities tradable emission allowances in order to
reduce emissions of nitrogen oxide.
D) In the 1980s the U.S. government required the installation of catalytic converters to
reduce emissions from all new automobiles.
Many economists criticize protectionism because it causes losses to consumers and
eliminates jobs in domestic industries that use protected products. Why, then, do some
people support protectionism?
A) The criticisms of economists are based on theory. In fact, protectionism increases
consumer and producer surplus as well as employment.
B) Supporters of protectionism in high-income countries believe that wages will fall as
a result of competition with firms from developing countries.
C) Supporters of protectionism believe free trade will cause their countries to lose their
comparative advantage.
D) Supporters of protectionism believe that free trade will lead to inflation.
Figure 15-3
Figure 15-3 above shows the demand and cost curves facing a monopolist.
Refer to Figure 15-3. Suppose the monopolist represented in the diagram above
produces positive output. What is the profit/loss per unit?
A) loss of $7 per unit
B) profit of $30 per unit
C) loss of $21 per unit
D) profit of $14 per unit
With respect to the financial crisis of 2007-2009, some economists argue that financial
service firms should have done a better job of assessing the risk involved in investing in
mortgage-backed securities. Better governance in this context refers to which of the
following?
A) improvements in aligning the actions of top managers with the preferences of
shareholders
B) improving the assessment of investments.
C) improving the monitoring of investments.
D) all of the above
Figure 2-10
Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each
country produces two goods, milk and honey.
Refer to Figure 2-10. If the two countries have the same amount of resources and the
same technological knowledge, which country has an absolute advantage in the
production of milk?
A) Bora Bora
B) They have the same advantage.
C) Tahiti
D) cannot be determined
The total output produced by a firm divided by the quantity of workers employed by the
firm is the definition of
A) the marginal product of labor.
B) the division of labor.
C) the average product of labor.
D) the average cost of production.
Economists believe the most persuasive argument for protectionism is to protect infant
industries. But the argument has a drawback. What is this drawback?
A) Governments always make the level of protection for infant industries too high.
B) Governments are usually too impatient and do not allow protection to remain in
place long enough to allow industries to be competitive in international markets.
C) Governments usually use tariffs, rather than quotas, to protect infant industries in
order to collect tariff revenue. (Quotas do not result in government revenue).
D) Protection lessens the need for firms to become productive enough to compete with
foreign firms; this often results in infant industries never “growing up.”
Figure 13-8
Figure 13-8 shows cost and demand curves for a monopolistically competitive producer
of iced tea.
Refer to Figure 13-8. Based on the diagram, one can conclude that
A) some existing firms will exit the market.
B) new firms will enter the market.
C) the industry is in long-run equilibrium.
D) firms achieve productive efficiency.
Table 2-6
Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either
devote their time to making bracelets or making necklaces.
Refer to Table 2-6. What is Haley’s opportunity cost of making a necklace?
A) 3/4 of a bracelet
B) 3 bracelets
C) 1 1/3 necklaces
D) 2 necklaces
The price elasticity of the supply of teenage labor services is approximately 1.36.
Suppose the minimum wage rises from $7.25 per hour to $8.75. Using the midpoint
formula, calculate the approximately change in the quantity of teenage labor supplied.
A) 3 percent
B) 4 percent
C) 5 percent
D) There is insufficient information to answer the question.
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. Prior to trade, what was the opportunity cost to produce 1 hat in
Belize?
A) 1/6 of a clock
B) 2/3 of a clock
C) 5 clocks
D) 6 clocks
After having a monopoly in the diamond market for many years, by 2000 the De Beers
company faced competition from other companies. To maintain its market share, De
Beers
A) began buying so-called “blood diamonds” in order to keep these diamonds out of the
control of other diamond companies.
B) adopted a strategy of differentiating its diamonds. Each of its diamonds is now
marked with a microscopic brand.
C) bought diamond mines in Canada and Russia that had been its competitors.
D) lowered the prices of its diamonds to make the market appear less profitable to
potential competitors.
Clarissa Kessler operates a store that sells toys. Her business suffered tremendously
when a giant discount store chain opened a store in the area and is able to sell its
products for less than Clarissa’s wholesale cost. Is this evidence of illegal price
discrimination on the part of the discount store chain?
A) Yes, it is clearly a violation of the Robinson-Patman Act.
B) No, because it can be argued that the discount store chain is justified in charging
lower prices because it is a large-volume buyer and is able to purchase toys at a lower
wholesale price than Clarissa.
C) Yes, the discount store chain is engaging in predatory pricing.
D) No, even if the price discrimination is based on differences in cost, the law states
that it is not illegal.
In a graph with output on the horizontal axis and total revenue on the vertical axis, what
is the shape of the total revenue curve for a perfectly competitive seller?
A) U-shaped
B) inverted U-shaped
C) a horizontal line
D) a ray from the origin
Which of the following statements about the price elasticity of demand is correct?
A) The elasticity of demand for a good in general is equal to the elasticity of demand
for a specific brand of the good.
B) The absolute value of the elasticity of demand ranges from zero to one.
C) Demand is more elastic in the long run than it is in the short run.
D) Demand is more elastic the smaller the percentage of the consumer’s budget the item
takes up.
To have a monopoly in an industry there must be
A) barriers to entry so high that no other firms can enter the industry.
B) a patent or copyright giving the firm exclusive rights to sell a product for 20 years.
C) an inelastic demand for the industry’s product.
D) a public franchise, making the monopoly the exclusive legal provider of a good or
service.
If your total satisfaction increases when you consume another unit, your marginal utility
must be
A) increasing.
B) decreasing.
C) negative.
D) positive.
Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of a
cappuccino is $4 each and apple turnovers are $1 each.
a. What is the amount of income allocated to cappuccino and apple turnover
consumption?
b. What is the price ratio (the price of cappuccinos relative to the price of apple
turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccinos to
the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer
apple turnovers, or the same amount of apple turnovers? Explain your answer using the
rule of equal marginal utility per dollar.
Figure 16-6
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity,
assume that consumers have identical demand curves and that Sensei knows what this
demand curve is. Figure 16-6 shows this demand curve.
Refer to Figure 16-6. With a two-part pricing scheme – a monopoly price for classes
and a one-time membership fee – what is the amount of producer surplus Sensei will
earn?
A) an amount equal to the area A + B + C + D
B) an amount equal to the area E + F
C) an amount equal to the area A + C + H
D) an amount equal to the area A + B + C + D + H + G
A patent is an example of
A) how ownership of a key input creates a barrier to entry.
B) a government-imposed barrier to entry.
C) occupational licensing.
D) how market failure can lead to oligopoly.
If an increase in income leads to a decrease in the demand for popcorn, then popcorn is
A) an inferior good.
B) a neutral good.
C) a necessity.
D) a normal good.
Which of the following is a macroeconomics question?
A) What determines the growth rate of gross domestic product?
B) How is the production quantity of snowboards determined?
C) What factors determine the price of electronic cigarettes?
D) What determines the salaries of Wall Street executives?
Figure 12-9
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly
competitive firm.
Refer to Figure 12-9. At price P4, the firm would produce
A) Q3 units.
B) Q4 units.
C) Q5 units.
D) Q6 units.
Table 13-5
Table 13-5 shows the demand and cost data facing a monopolistically competitive
producer of canvas bags.
Refer to Table 13-5. At the profit-maximizing or loss-minimizing output level
A) the firm makes a profit of $12.
B) the firm incurs a loss equal to its fixed cost.
C) the firm makes a profit of $16.
D) the firm incurs a loss of $14.
In a monopolistically competitive market, a successful new restaurant
A) can earn economic profits in the long run if it uses barriers to restrict entry by new
restaurants.
B) will earn zero economic profit in the long run because of free entry, but competition
will lead restaurants to offer different versions of the same product.
C) will face high entry barriers because of health and safety regulations to which all
restaurants are subject.
D) must obtain a trademark to ensure that it will break even in the long run.