Referring to the previous question, all else constant, a 5 unit increase in the wage index
would cause:
A) quantity supplied to increase by 9 units and be shown by a movement up the supply
curve.
B) quantity supplied to decrease by 9 units and be shown by a movement down the
supply curve.
C) quantity supplied to increase by 9 units and be shown by a rightward shift of the
supply curve.
D) quantity supplied to decrease by 9 units and be shown by a leftward shift of the
supply curve.
Assume that for a particular firm’s output price = $80, marginal cost = $30, average
total cost = $25. Based on this information, the firm’s Lerner Index is equal to:
A) 0.313.
B) 0.375.
C) 0.6.
D) 0.625.
Assume a firm produces 500 units of a good by using two inputs, capital and labor,
whose per unit prices are $10 and $4. Assume also that the marginal physical product of
the last unit of capital is 30 and the marginal physical product of the last unit of labor is
10. What will change to move the firm to a new cost-minimizing equilibrium?
A) The marginal product of capital will fall and the marginal product of labor will
increase.
B) The marginal product of labor will fall and the marginal product of capital will
increase.
C) The price of labor will rise.
D) The price of capital will rise.
A lower real interest rate, amount of consumer debt, and personal taxes ________
personal consumption expenditures.
A) increase
B) decrease
C) have no effect on
D) none of the above
Economies of scale are illustrated by:
A) a downward sloping long-run average cost curve.
B) a flat long-run average cost curve.
C) an upward-sloping long-run average cost curve.
D) a downward-sloping short-run average total cost curve.
Assume the technology for producing personal computers improves and, at the same
time, individuals discover new uses for personal computers so that there is greater
utilization of personal computers. Which of the following will happen to equilibrium
price and equilibrium quantity?
A) Price will increase; quantity cannot be determined.
B) Price will decrease; quantity cannot be determined.
C) Quantity will increase; price cannot be determined.
D) Quantity will decrease; price cannot be determined.
Which of the following is not a characteristic of a perfectly competitive market?
A) Large number of firms in the industry.
B) Outputs of the firms are perfect substitutes for one another.
C) Limited information is available to all market participants.
D) Ease of entry into the market.
Given the demand function in log-linear form: Q = 120 – 1.5P + 12ADV where Q =
quantity, P = price, and ADV = advertising expenditures, what is the price elasticity?
A) 1.5, inelastic
B) -1.5, elastic
C) 120, elastic
D) 12, elastic
Within the circular flow model, which of the following isnot represented as a flow of
funds into firms?
A) Foreign purchases of goods and services.
B) Income payments.
C) Consumption spending.
D) Government purchases.
Consumers don’t care which supplier they buy from in a perfectly competitive market
because:
A) the outputs of the firms in a perfectly competitive market are all the same.
B) the consumers have no choice regarding who they buy from.
C) price is always low enough that the choice of supplier doesn’t matter.
D) all of the above.
In the foreign exchange market, the quantity U.S. dollars demanded is a function of:
A) the amount of imports and the level of capital outflows.
B) the amount of exports and the level of capital outflows.
C) the amount of exports and the level of capital inflows.
D) none of the above.
Personal income less personal taxes is called:
A) personal disposable income.
B) national income.
C) compensation of employees.
D) savings.
The Lerner Index is a measure of market power that focuses on:
A) the ratio of the price of a firm’s product to the price elasticity of demand for the
product.
B) the share of the market controlled by the X largest firms in the market.
C) the sum of the squares of the market share of each firm in an industry.
D) the difference between a firm’s product price and its marginal costs of production.
The exchange rate is determined by the interaction of the supply and demand for
currencies in which exchange rate system is:
A) fixed.
B) flexible.
C) all of the above.
D) none of the above.
Assume the four-firm concentration ratio in industry X is 75 percent and that the firms
in the industry produce a differentiated product. Industry X most likely would be
characterized as:
A) perfectly competitive.
B) a monopoly.
C) monopolistically competitive.
D) an oligopoly.
As the price of milk increases, what would reasonably be expected to happen to the
equilibrium price and equilibrium quantity of cereal? (Milk and cereal are
complements.)
A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would decrease and equilibrium quantity would increase.
D) Equilibrium price and quantity would both increase.
The assumed goal of the firms that operate in each of the four market structures
discussed in the text is to maximize:
A) sales.
B) revenue.
C) profits.
D) price.
Which of the following is not an example of a two-part pricing scheme in the context of
price discrimination?
A) A customer pays full price for the first 10 copies of a software program and then
receives a 10 percent discount on each additional copy it buys.
B) A firm, e.g., Sam’s Club or Costco, charges a membership fee that is separate from
the price paid for items purchased from the firm.
C) A customer pays a $10 cover charge to enter a bar and then pays $5 for each
beverage.
D) An amusement park charges an admission fee and then charges a per unit price for
each of the rides offered by the park.
If electricity demand is inelastic, and electric rates increase, which of the following is
likely to occur?
A) Quantity demanded will fall by a relatively large amount.
B) Quantity demanded will fall by a relatively small amount.
C) Quantity demanded will rise in the short run, but fall in the long run.
D) Quantity demanded will fall in the short run, but rise in the long run.
When a country’s export spending exceeds import spending, the country is experiencing
a:
A) trade deficit.
B) trade surplus.
C) budget deficit.
D) none of the above.
An increase in wealth would shift the:
A) aggregate demand curve rightward.
B) aggregate demand curve leftward.
C) aggregate supply curve rightward.
D) aggregate supply curve leftward.
An increase in the reserve requirement would:
A) decrease excess reserves and reflect an expansionary monetary policy.
B) decrease excess reserves and reflect a contractionary monetary policy.
C) increase excess reserves and reflect an expansionary monetary policy.
D) increase excess reserves and reflect a contractionary monetary policy.
Which of the following statements about monopoly is false?
A) A single firm serves the market.
B) There are no close substitutes for the monopolist’s output.
C) There are usually significant barriers to entry.
D) Because there is a single firm serving the entire market, the monopolist can charge
whatever price it wants to for its output.
Expansionary fiscal policy should be used if:
A) aggregate demand-aggregate supply equilibrium is below potential output.
B) aggregate demand-aggregate supply equilibrium is above potential output.
C) aggregate demand-aggregate supply equilibrium is equal to potential output.
D) none of the above.
Which of the following statements is correct?
A) Managerial decisions are affected primarily by microeconomic forces.
B) Managerial decisions are affected primarily by macroeconomic forces.
C) Managerial decisions are affected by both microeconomic and macroeconomic
forces.
D) By and large, managerial decisions are not affected by either microeconomic or
macroeconomic forces.
According to the information presented in the text the parcel and express delivery
industry could best be characterized as:
A) a perfectly competitive market.
B) a monopolistically competitive market.
C) an oligopoly.
D) a monopoly.
An increase in price will result in an increase in total revenue if demand is:
A) perfectly elastic.
B) relatively elastic.
C) inelastic.
D) unit elastic.
Assume a perfectly competitive firm is in long-run equilibrium and there is a decrease
in market demand for the firm’s output. Which of the following will occur?
A) Existing firms will maintain the original level of output, but they will shift their cost
functions down in the short run.
B) Existing firms will raise price to cover the reduction in quantity demanded and
maintain total revenue in the short run.
C) Existing firms will reduce output in the short run.
D) Market price will be above its original level.
When price is greater than average variable cost but less than average total cost at the
profit-maximizing level of output, a firm should:
A) continue to produce the level of output at which marginal revenue equals marginal
cost.
B) increase output to minimize its losses.
C) reduce output to the level at which price equals average variable cost to minimize its
losses.
D) shutdown to minimize its losses.
The demand and supply functions for sweatshirts (the basic grey kind) are as follows:
Demand Supply
Quantity Quantity
Demanded Supplied
Price (per period) Price (per period)
$10 15,000 $10 22,000
9 15,500 9 19,000
8 16,000 8 16,000
7 16,500 7 13,000
6 17,000 6 10,000
5 17,500 5 7,000
4 18,000 4 4,000
3 18,500 3 1,000
2 19,000 2 0
a. Graph the demand and supply functions for sweatshirts and find the equilibrium price
and quantity.
b. What effect will an increase in the price of gym shoes (a complement) have on the
equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect
using your graph.
c. What effect will a wage increase for workers in the sweatshirt industry have on the
equilibrium price and quantity of sweatshirts, all else constant? Illustrate the effect
using your graph.