Most people would prefer to drive a luxury car that has all the options, but more people
buy less expensive cars even though they could afford the luxury car because
A) car buyers are irrational.
B) the total utility of less expensive cars is greater than that of luxury cars.
C) the marginal utility per dollar spent on the less expensive car is higher than that
spent on luxury cars.
D) luxury cars cost a lot more than non-luxury cars.
For many products, such as fast foods, a variety of prices can be found, but sellers with
higher prices can expect to sell their products because
A) consumers are not sensitive to prices.
B) arbitrage will quickly eliminate price differences.
C) firms differentiate products in many ways, for example, higher-priced fast food
restaurants may offer better service.
D) their demand is perfectly inelastic.
The observation that people tend to value something more highly when they own it than
when they don’t is called the
A) wealth effect.
B) endowment effect.
C) path-dependent effect.
D) endorsement effect.
In the long run, a perfectly competitive market will
A) produce only the quantity of output that yields a long-run profit for the typical firm.
B) supply whatever amount consumers will buy at a price which earns the market an
economic profit.
C) supply whatever amount consumers demand at a price determined by the minimum
point on the typical firm’s average total cost curve.
D) generate a long-run equilibrium where the typical firm operates at a loss.
The current price of canvas messenger bags is $36 each and sales of the bags equal 400
per week. If the price elasticity of demand is -2.5 and the price changes to $44, how
many messenger bags will be sold per week? Use the midpoint formula.
Figure 11-1
Refer to Figure 11-1. The average product of the 4th worker
A) is 68.
B) is 17.
C) is 11.
D) cannot be determined.
Figure 15-1
Refer to Figure 15-1. Which of the following statements about the firm depicted in the
diagram is true?
A) The fact that this firm is a natural monopoly is shown by the long-run average total
cost curve still falling when it crosses the demand curve.
B) The fact that this firm is a natural monopoly is shown by the continually declining
market demand curve as output rises.
C) The fact that this firm is a natural monopoly is shown by the continually declining
marginal revenue curve as output rises.
D) The fact that this firm is a natural monopoly is shown by the fact that marginal cost
lies below the long-run average total cost where the firm maximizes its profits.
Figure 12-15
Refer to Figure 12-15. Suppose a typical firm in a perfectly competitive market is
earning economic profits in the short run. Which of the diagrams in the figure depicts
what happens to in the industry as it transitions to a long-run equilibrium?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
If electric utilities continually reduce their emissions of sulfur dioxide
A) the utilities will eventually be forced to go out of business.
B) the marginal benefit of additional emissions will rise.
C) the marginal cost of further emissions will rise.
D) the total benefit of sulfur dioxide emissions will fall.
Table 1-3
Santiago runs a comic book store in the town of East Arbor. He is debating whether he
should extend his hours of operation. Santiago figures that his sales revenue will
depend on the number of extra hours the store is open as shown in the table above. He
would have to hire a worker for those extra hours at a wage rate of $18 per hour.
Refer to Table 1-3. Using marginal analysis, by how many hours should Santiago
extend his store’s hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
Which of the following is not a way by which price-discriminating firms can segment a
market?
A) on the basis of time of purchase, for example long-distance calling
B) by requiring an advance purchase, for example airline tickets
C) on basis of the buyer’s location, for example requiring out-of-state students to pay
higher tuition
D) on the basis of the supplier’s marginal cost of production, for example requiring
customers to pay a premium for customizing options
Which of the following is an example of a federal mandate?
A) an excise tax
B) the Medicaid program
C) the personal tax exemption
D) the Food and Drug Administration (FDA)
On an isoquant/isocost graph, the least cost input combination of producing a given
output is
A) any point on the isoquant curve.
B) any point on the isocost line.
C) given by the tangency between the isoquant curve and the isocost line.
D) one of the intercept values on the graph.
Figure 3-8
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D1 and S1 (point A). If the
price of oranges, a substitute for apples, decreases and the wages of apple workers
increase, how will the equilibrium point change?
A) The equilibrium point will move from A to E.
B) The equilibrium point will move from A to B.
C) The equilibrium point will move from A to C.
D) The equilibrium will first move from A to B, then return to A.
Gowri has $6 per day to purchase lunch. She spends all of her lunch money on pizza
and iced tea. The price of pizza is $2.00 per slice and iced tea costs $1 per bottle.
a. Draw Gowri’s budget constraint and label it BC0. Put pizza on the horizontal axis and
iced tea on the vertical axis. Be sure to identify the intercept values.
b. If the price of iced tea rises to $1.20 per bottle, show what will happen to her budget
constraint in your diagram. Be sure to indicate any new intercept values.
Firms that are price takers
A) must lower their prices to increase sales.
B) are able to sell a fixed quantity of output at the market price.
C) can raise their prices as a result of a successful advertising campaign.
D) are able to sell all their output at the market price.
The demand for capital is similar to the demand for labor in that
A) the marginal product of labor is derived from the marginal product of capital.
B) the marginal revenue product curve for labor is the same as the marginal revenue
product curve for capital.
C) both are derived demands.
D) both are inelastic at high prices and elastic at low prices.
The long-run supply curve for a perfectly competitive, constant-cost industry
A) is upward-sloping.
B) is horizontal.
C) is downward-sloping.
D) is found by adding up the marginal cost curves for all firms in the industry.
Assume that Anne has $300 to spend on DVDs and CDs. Her optimal consumption of
DVDs and CDs is illustrated by a tangency between a budget line and an indifference
curve. Now assume that the price of CDs rises but the price of DVDs falls. How can
you show that Anne is made better off by these price changes?
A) Show that the price changes shift Anne’s budget line outward; the budget line is
tangent to a higher indifference curve.
B) Show that the price changes move Anne along her budget line to a higher
indifference curve.
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at
their original prices; then show that Anne can now reach a higher indifference curve.
D) Show that Anne can now afford to buy more DVDs, which give her greater utility
than CDs.
If we use a narrow definition of monopoly, then a monopoly is defined as a firm
A) that has been granted special production rights by the government.
B) that can ignore the actions of all other firms because it produces a superior product
compared to its rivals’ products.
C) that can ignore the actions of all other firms because it produces a product for which
there are no close substitutes.
D) that has the largest market share in an industry.
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. What is the value of producer surplus after the imposition of the
ceiling?
A) $40,000
B) $100,000
C) $300,000
D) $430,000
A monopoly is characterized by all of the following except
A) there are only a few sellers, each selling a unique product.
B) entry barriers are high.
C) there are no close substitutes to the firm’s product.
D) the firm has market power.
Suppose that American firms claim that protectionism in Canada is on the rise as the
Canadian government attempts to protect its infant industries. This protectionism will
cause the greatest harm to
A) Canadian manufacturers.
B) the Canadian government.
C) manufacturers who export to Canada.
D) Canadian consumers.
When a firm faces a downward-sloping demand curve, marginal revenue
A) must exceed price because the price effect outweighs the output effect.
B) is less than price because a firm must lower its price to sell more.
C) equals price because the firm sells a standardized product.
D) must exceed price because the output effect outweighs the price effect.
The substitution effect of an increase in the price of peaches is
A) the change in the quantity demanded that results from a change in the price of
peaches, making peaches more expensive relative to other goods, holding constant the
effect of the price change on consumer purchasing power.
B) the change in the demand for nectarines (a substitute good) that results when
peaches become more expensive relative to nectarines, holding constant the effect of
the price change on consumer purchasing power.
C) the change in the quantity of peaches demanded that results from the effect of the
change in the price of peaches on the consumer’s purchasing power.
D) the change in the demand for peaches that results when the price of peaches
increases.
State whether each of the following goods and services is nonrival, nonexcludable or
both:
a. A toll road
b. A public park
c. A lighthouse
d. An art museum
e. A radio broadcast of “A Prairie Home Companion”
A firm that has the ability to control to some degree the price of the product it sells
A) is also able to dictate the quantity purchased.
B) faces a demand curve that is inelastic throughout the entire range of market demand.
C) is a price maker.
D) faces a perfectly inelastic demand curve.
When Mr. Peabody decides on the companies to which he will donate his time and
money, a ________ issue is being addressed.
A) microeconomic
B) macroeconomic
C) positive economic
D) normative economic
Marty’s Bird House suffers a short-run loss. Marty can reduce his loss below the
amount of his total fixed costs by continuing to produce if his revenue
A) exceeds his implicit costs.
B) exceeds his nonmonetary opportunity costs.
C) exceeds his variable costs.
D) exceeds his marginal costs.
Wage differences can be explained by all of the following except
A) compensating differentials.
B) differences in marginal revenue products.
C) economic discrimination.
D) comparable worth.
If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then
in producing it, the firm
A) added more to total costs than it added to total revenue.
B) added more to total revenue than it added to total cost.
C) is maximizing marginal profit.
D) has minimized its losses.