_____ is a means-tested program.
A) Expenditure on national defense
B) Social Security payments to the disabled
C) The food stamp program
D) Purchasing a new city police car
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. The minimum average variable cost occurs at output of:
A) 2.
B) 3.
C) 4.
D) 5.
A consumer’s willingness to pay reflects:
A) the maximum price at which he or she would buy the good or service.
B) the minimum price at which he or she would buy the good or service.
C) the cost of producing the good or service.
D) the equilibrium price of the good or service.
As a result of frequent flooding, the insurance market has noted a positive correlation
between flooding and the amount of insurance monies paid out for such floods. Holding
demand for insurance constant, if flooding is expected to continue to be a problem:
A) flood insurance providers will reap greater profits.
B) more insurance companies will provide such insurance.
C) flood insurance markets may eventually collapse, since the risks of damage cannot
be offset by diversification.
D) flood insurance premiums will decrease.
(Table: Utility for Terri and Mary) Look at the table Utility for Terri and Mary. Each has
an income of $300. If each were offered insurance to offset the risk of falling income,
_____ would pay a larger premium because she is the consumer with _____ risk
aversion.
A) Terri; more
B) Terri; less
C) Mary; more
D) Mary; less
To encourage consumption of a good that generates positive externalities, the best
option for policymakers would be to:
A) impose a tax on the amount consumed to achieve the socially optimal level.
B) mandate consumption of the good at the socially optimal level.
C) provide a subsidy per unit of the good consumed to achieve the socially optimal
level.
D) do nothing, since the market will achieve the socially optimal level without
government intervention.
A new wonder diet that results in a dramatic weight loss sweeps through the United
States. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry
or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can
expect a(n) _____ in the _____ poultry, leading to a shift to the _____ in the _____
curve for poultry and _____ poultry prices.
A) decrease; supply of; left; supply; higher
B) increase; supply of; right; supply; higher
C) decrease; demand for; right; demand; lower
D) decrease; demand for; left; demand; curve lower
When a person becomes better educated and is able to produce a better product, the
person’s education is an improvement in:
A) human capital.
B) physical capital.
C) land.
D) labor.
Figure: Pricing Strategy in Cable TV Market I
(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in
Cable TV Market I. If the two firms in the cable TV market collude:
A) both firms advertise, and each earns $100,000 per month.
B) neither firm advertises, and each earns $150,000 per month.
C) CableNorth advertises and earns $130,000 per month, while CableSouth does not
advertise and earns $70,000 per month.
D) both firms advertise and each earns $130,000 per month.
Figure: Monopoly Model
(Figure: Monopoly Model) Look at the figure Monopoly Model. The profit-maximizing
price is:
A) Z.
B) P.
C) S.
D) I.
Figure: Seasonally Adjusted Unemployment Rate
(Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally
Adjusted Unemployment Rate. The distance between each labeled point on the
horizontal axis is one year. What is the approximate slope of the graph between 1/2001
and 1/2003?
A) 2
B) 1
C) “1
D) “2
Conditions that keep new firms out of a monopoly market are:
A) barriers to entry.
B) terms of sale.
C) labor market stipulations.
D) production controls.
Damage to the environment occurs because:
A) most businesses just don’t care about the environment.
B) consumers want goods and services at the lowest prices no matter what other costs
may be incurred.
C) pollution results from production of goods and services.
D) pollution reduces the social cost of production.
A negative relationship between the quantity demanded and price is called the law of:
A) demand.
B) marginality.
C) efficiency.
D) supply.
Figure: Price Control
(Figure: Price Control) Look at the figure Price Control. One effective price ceiling
would be the price indicated at point _____, and there would be a _____ equal to the
difference between points _____.
A) b; surplus; f and e
B) b; shortage; f and e
C) d; shortage; i and h
D) d; surplus; e and h
The tendency to avoid making a decision is:
A) status quo bias.
B) bounded rationality.
C) loss aversion.
D) mental accounting.
In the market for grass-fed beef, what would cause a price increase?
A) The price of chicken decreases.
B) Doctors tell patients that beef is full of saturated fat that causes heart attacks.
C) The prices of grass and corn increase.
D) There is a movement in the United States toward vegetarianism.
(Table: Income and Utility for Tyler) The table Income and Utility for Tyler shows the
utility Tyler receives at various income levels, but she does not know what her income
will be next year. There is a 40% chance her income will be $20,000, a 40% chance her
income will be $30,000, and a 20% chance her income will be $40,000. We know that
Tyler is risk-averse because:
A) Tyler would prefer $40,000 but there is a risk she will make only $20,000.
B) Tyler’s expected income is less than what she may actually earn.
C) Tyler’s expected income is more than what she may actually earn.
D) Tyler is subject to diminishing marginal utility from income.
If marginal utility is diminishing, the marginal utility curve is _____, since each
additional unit of the good consumed yields _____ satisfaction.
A) downward-sloping; less
B) upward-sloping; more
C) downward-sloping; more
D) upward-sloping; less
Scenario: Betty’s Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each. She employs five people,
each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her
costs of equipment and raw materials add up to $75,000. Her business ability is
legendary, and other companies have offered to pay Betty $100,000 to come to work for
them. She also knows she could sell her cookie shop for $150,000. The bank in town
pays an annual interest rate of 3% on all funds deposited with it.
(Scenario: Betty’s Cookie Shop) Betty’s explicit costs are equal to:
A) $100,000.
B) $80,000.
C) $250,000.
D) $264,000.
The United States must give up the production of 300 motorcycles to produce 15
additional SUVs with the same resources. The opportunity cost of producing 100
motorcycles is _____ SUV(s).
A) 1
B) 5
C) 7
D) 15
Figure: Producer Surplus and Supply
(Figure: Producer Surplus and Supply) Look at the figure Producer Surplus and Supply.
The difference between the total revenue received by sellers and their total cost is called
_____ surplus, which is depicted by area _____ if the amount sold is E.
A) consumer; ABD
B) producer; 0BDE
C) net; 0ADE
D) producer; ABD
Which of the following best describes the amount of utility that is gained by spending
an additional dollar on yogurt?
A) the average utility of yogurt divided by the price of yogurt
B) the marginal utility of one tub of yogurt divided by the price of yogurt
C) the total utility of a tub of yogurt divided by the price of yogurt
D) the value equal to the price of a related good.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. If the games are free,
how many games should he attend?
A) 1
B) 5
C) 7
D) 8
(Figure: Wine and Wheat) Look at the
figure Wine and Wheat. If this economy is producing at point A and wants to produce at
point B, it must:
A) trade with another country.
B) increase its resources.
C) decrease production.
D) use its existing resources efficiently.
Suppose the price of real estate increases by 37.11% in Oakland next year. If the
quantity of new homes supplied does not change, this means that the price elasticity of
_____ will be perfectly _____ in Oakland next year.
A) demand; elastic
B) supply; inelastic
C) demand; inelastic
D) supply; elastic
Tony has a cell phone, and his service provider is Verizon. When he calls his wife,
Meleah, another Verizon customer, he does not have to pay for those minutes. The more
Verizon customers there are in the market, the more benefit Tony receives. This is:
A) a network externality.
B) the Coase theorem.
C) a Pigouvian subsidy.
D) a technology spillover.
Figure: Demand, Revenue, and Cost Curves
(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue,
and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the
government wanted to regulate Figglenuts-R-Us such that it would minimize the
deadweight loss while allowing the firm to break even, it would impose a price ceiling
of:
A) $40.
B) $46.
C) $50.
D) $65.
Figure: Income and Leisure Opportunities
(Figure: Income and Leisure Opportunities) The figure Income and Leisure
Opportunities refers to Keisha when she has 100 hours per week for working or leisure.
There are two time allocation lines, one for a $10 hourly wage rate and one for a $20
hourly wage rate. Keisha’s optimal choice is point A when the wage is $10, and her
optimal choice is point C when the wage is $20. As the amount she earns increases from
$10 per hour to $20 per hour, Keisha will work _____ hours because of the income
effect.
A) 10 fewer
B) 15 more
C) 25 fewer
D) 50 more
Margo has a monthly income of $60 to spend on coffee or bagels. Each cup of coffee
costs $3 and each bagel costs $4. Margo spends all of her income, and at her
consumption bundle, she is willing to forgo 1 bagel to get the next cup of coffee to
achieve the same level of utility. To maximize her utility, Margo should:
A) increase coffee consumption and decrease bagel consumption.
B) increase bagel consumption and decrease coffee consumption.
C) do nothing.
D) decrease both coffee and bagel consumption.
If a nation exports a good when the economy is opened to trade, relative to the autarky
price, the domestic price of the good will _____ and domestic consumption will _____.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
The price received by a firm in a perfectly competitive market:
A) is equal to the market price.
B) is less than the market price.
C) is greater than the market price.
D) decreases with the quantity of output sold by the firm.
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. If
the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity
demanded and a(n) _____ in total revenue.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase