Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders
per month. Cindy’s monthly total fixed costs are $500, and her monthly total variable
costs are $2,500. If for some reason Cindy’s fixed cost fell to $400, then her _____ costs
would _____.
A) average fixed; increase
B) average total; decrease
C) marginal; decrease
D) average variable; decrease
We have to make choices because:
A) we have unlimited income.
B) resources are scarce.
C) resources are infinite.
D) with good planning, trade-offs can be avoided.
Private information leads _____ to expect hidden problems in items offered for sale,
leading to _____ prices and to the best items being kept off the market.
A) buyers; high
B) buyers; low
C) sellers; high
D) sellers; low
(Table: Total Cost and Total Individual Benefit) Look at the table Total Cost and Total
Individual Benefit. If there are 1,000 residents and they all have the same total
individual benefit, as shown in the table, what is the marginal social benefit of the
fourth animal control officer?
A) $10
B) $9,000
C) $10,000
D) $90,000
Figure and Table: The Budget Line
(Figure and Table: The Budget Line) Look at the figure and table The Budget Line.
_____ in the price of potatoes would rotate the budget line along the _____ axis _____
the origin.
A) An increase; horizontal; away from
B) A decrease; horizontal; toward
C) An increase; vertical; toward
D) A decrease; vertical; toward
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output. If
Pat purchases one mixer, her average total cost _____ in the range of output between
100 and 400 cakes.
A) increases
B) decreases
C) remains the same
D) can’t be calculated
You decide to quit your $60,000-per-year job as an information technology specialist
and illustrate children’s books. At the end of the first year of illustrating, you have
earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the
first year as an illustrator is:
A) $15,000.
B) $20,000.
C) “$40,000.
D) “$45,000.
Wolfgang really likes rutabagas and likes broccoli fairly well. Suppose the price of each
good is $0.60 per pound and Wolfgang is maximizing utility, consuming 5 pounds of
rutabagas and 0.5 pound of broccoli per month. At the point of maximal utility, the
marginal utility of:
A) the two goods is the same.
B) rutabagas is greater than that of broccoli.
C) broccoli is greater than that of rutabagas.
D) both goods is zero.
Which of the following demonstrates how people respond to incentives to make
themselves better off?
A) More students major in economics when they hear that salaries for economists are
rising.
B) Students are assigned dorm rooms through a lottery system.
C) Students are encouraged to donate blood because it is the right thing to do.
D) Students and faculty are encouraged to wear college apparel to support the college
athletic teams.
Figure: Profit Maximization in Monopolistic Competition
(Figure: Profit Maximization in Monopolistic Competition) Look at the figure Profit
Maximization in Monopolistic Competition. In monopolistic competition, long-run
equilibrium is characterized by:
A) P > MR.
B) P < MR.
C) P = MR.
D) profit maximization, which occurs where P = MR = MC.
Because the efficiency wage is _____ the equilibrium wage, it may lead to a _____ of
labor.
A) below; shortage
B) below; surplus
C) above; shortage
D) above; surplus
Assume that Maia spends all of her income on halvah (H) and pomegranates (P) and is
purchasing the optimal consumption bundle. If MUH / MUP = 3 and the price of halvah
is $12, then the price of pomegranates is:
A) $36.
B) $4.
C) $12.
D) $3.
When workers earn income, they and their employer pay equal portions of FICA (the
Federal Insurance Contributions Act). Which of the following statements is TRUE?
A) The worker and the employer each bear half of the burden (incidence) of the tax.
B) The employer bears almost all of the burden of the tax.
C) The worker bears almost all of the burden of the tax.
D) It’s impossible to determine who bears the burden of the tax.
If a firm hires labor such that W > VMPL, then profit:
A) is maximized.
B) can be increased by hiring less labor.
C) can be increased by hiring more labor.
D) can be increased by decreasing the price of the output.
(Table: Cherry Farm) Look at the table Cherry Farm. If the price is $10 per pound:
A) firms will enter the industry.
B) firms will exit the industry.
C) the industry is in long-run equilibrium.
D) the industry has minimized average total cost.
Your neighbor is mowing her yard one afternoon when she stops to have some
lemonade. She drinks one glass and is considering having a second glass. This is an
example of:
A) marginal analysis.
B) benefit analysis.
C) cost analysis.
D) equilibrium analysis.
In economics, maximization of the total profit of an activity occurs when:
A) MB = MC.
B) MB > MC.
C) MB < MC.
D) MB approaches MC.
Figure: Shifts in Demand and Supply IV
(Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and
Supply IV. The figure shows how supply and demand might shift in response to specific
events. Suppose half of the people in San Diego move to Colorado Springs. Which
panel BEST describes how this will affect the market for houses in Colorado Springs?
A) panel A
B) panel B
C) panel C
D) panel D
While buying refreshments for an upcoming party, you notice that a six-pack of
Americana Beer costs $2 and a six-pack of Bavarian Beer costs $4. You buy the
six-pack of Bavarian Beer, although you wonder if maybe two six-packs of Americana
Beer would have been a better choice. The opportunity cost of the Bavarian Beer is:
A) $4.
B) a six-pack of Americana Beer.
C) two six-packs of Americana Beer.
D) $4 and the six-pack of Americana Beer.
(Table: Cost Data) Look at the table Cost Data. The average total cost of producing 5
purses is:
A) $10.
B) $38.
C) $48.
D) $240.
Rent controls in New York City cause all of the following EXCEPT:
A) inefficiently low-quality apartments.
B) wasted resources resulting from the opportunity cost of time associated with trying
to find an apartment.
C) black markets.
D) an increase in the quantity supplied of rent-controlled apartments.
The amount for which suppliers are willing to supply the quota limit quantity is the:
A) demand price.
B) supply price.
C) quota rent.
D) price floor.
All points inside the production possibility frontier represent:
A) efficient production points.
B) inefficient production points.
C) infeasible production points.
D) economic growth.
Figure: The Production Possibility Frontiers for Jackson and Tahoe
(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure
The Production Possibility Frontiers for Jackson and Tahoe. Tahoe has an absolute
advantage in producing:
A) wheat only.
B) cattle only.
C) both wheat and cattle.
D) neither wheat nor cattle.
Figure: A Rock Climbing Shoe Monopoly
(Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe
Monopoly. If the firm acts to maximize profit, the firm will sell _____ pairs of shoes at
_____ per pair.
A) Q2; P1
B) Q2; P5
C) Q3; P2
D) Q4; P3
Tacit collusion is relatively easy for oligopolists if:
A) they are producing many different products.
B) there are only a few firms in the industry.
C) they are selling their product to only a few large buyers.
D) barriers to entry into the industry are low.
A popular explanation for the most important cause of the increase in income inequality
in recent years is:
A) the elimination of many income redistribution programs.
B) rapid technological change.
C) the failing education system.
D) the failing education system and rapid technological change.
Figure: The Demand for Bricklayers
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
The equilibrium market wage for bricklayers is $100 a day, but there is a new minimum
wage of $120. Therefore:
A) three workers who otherwise would have been employed by this firm are now
unemployed.
B) four workers will now be hired by this firm.
C) all bricklayers are better off.
D) this firm will shut down.
Scarcity exists when:
A) making choices among two or more alternatives is not necessary.
B) individuals can have more of any good without giving up anything.
C) individuals can have more of one good but only by giving up something else.
D) resources are unlimited.
How would each of the following events affect the demand for new textbooks? I. The
price of a used textbook rises. II. The price of college tuition rises. III. More high
school graduates decide to attend college.
Two electronic retailers, Biggest Buy and Connection City, are considering entering a
small town. Biggest Buy is the larger and more profitable of the two rivals. Each firm
can either enter the market or not. The table shows the payoff matrix. Profits in each
cell of the payoff matrix are given as (Biggest Buy, Connection City). Are there any
dominant strategies in the game? If this game is played only once and each firm makes
the entry decision independently, what is the Nash equilibrium of this game? Explain
your conclusions.
Describe the shape of the AFC curve and explain why it takes this shape. Can AFC ever
intersect the x-axis?
Many college freshmen describe themselves as pre-med, but a very small percentage of
these freshmen will ever attend medical school. After the first course in biology or
chemistry, many decide to major in something other than the natural sciences. Which of
the 12 principles is at work here?
Table: Coffee Shops
(Table: Coffee Shops) Look at the table Coffee Shops. Assume the price of coffee is
$1.75. Show how total producer surplus decreases at any number of cups that differs
from the equilibrium (price is $1.75 and quantity is 10 cups).
Newman has decided to take a road trip in a rental car. He has the minimum amount of
personal car insurance to rent the car, but he decides to pay a little extra to the rental car
company to completely insure himself against any damage to the rental car. How is
there a potential moral hazard due to Newman’s purchase of the additional insurance?
Why do the United States and many other countries have antitrust laws? What’s so
harmful about oligopoly that it warrants an entire body of law?
You overhear an economist refer to the price of leisure. What does this mean? How can
leisure have a price?
Apple and Samsung are large corporations that produce smart phones, the iPhone and
the Galaxy, respectively. They are constantly trying through expensive advertising and
product innovations to persuade customers to buy their brand. Is the smart phone
market a competitive in the economic sense defined in Chapter 3? Why or why not?