(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the average variable cost of 4 cakes?
A) $38.00
B) $10.00
C) $9.50
D) $8.00
Figure: Profits in Monopolistic Competition
(Figure: Profits in Monopolistic Competition) In panel (C) of the figure Profits in
Monopolistic Competition, the profit-maximizing quantity of output is determined by
the intersection at point:
A) P.
B) S.
C) R.
D) Q.
Because one person’s spending is another person’s income:
A) if one group in the economy spends more, the incomes of other groups will decrease.
B) if one group in the economy spends less, the incomes of other groups will increase.
C) if one group in the economy spends more, the incomes of other groups will increase.
D) spending by one group does not influence the income of any other group.
Assuming a normal upward-sloping supply curve and downward-sloping demand
curve, if the government imposes a $5 excise tax on leather shoes and collects the tax
from the suppliers, the price of leather shoes will:
A) increase by $5.
B) increase by more than $5.
C) increase by less than $5.
D) increase, but we cannot determine by how much.
The marginal cost of producing an artificially scarce good is equal to:
A) zero.
B) the marginal benefit if consumer surplus equals zero.
C) the average total cost.
D) its price.
The lack of property rights and inaccuracy of prices as economic signals often lead to:
A) too much competition in markets.
B) an increase in consumer surplus and a decrease in producer surplus.
C) an increase in total surplus.
D) market failure.
The value of the marginal product is the:
A) change in total output resulting from a unit change in the quantity of a factor.
B) change in total revenue resulting from a unit change in the quantity of a factor.
C) change in total cost resulting from a unit change in the quantity of a factor.
D) ratio of total revenue to the quantity of a factor employed.
If the price is greater than average total cost at the profit-maximizing quantity of output
in the short run, a perfectly competitive firm will:
A) produce at a loss.
B) produce at a profit.
C) shut down production.
D) produce more than the profit-maximizing quantity.
If monopolistically competitive firms are earning positive economic profits in the short
run, then in the long run:
A) firms will leave the industry.
B) the demand curves faced by existing firms will move to the right.
C) economic profits will increase.
D) economic profits will be reduced to zero.
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two
producers have formed a cartel, agreed to split production of output evenly and are
maximizing total industry profits. If Margaret decides to cheat on the agreement and
sell 100 more gadgets, Margaret’s price effect will be a(n) _____ in profit of _____.
A) decrease; $400
B) increase; $400
C) increase; $250
D) decrease; $250
The difference between total revenue and total cost is:
A) economic profit or loss.
B) nominal revenue.
C) average revenue.
D) marginal revenue.
Airlines are prone to price wars because:
A) most fliers choose airlines on the basis of schedule and price.
B) airline pricing is easy to understand.
C) airlines have the same costs.
D) airlines operate close to capacity.
Which of the following is most likely an example of wage disparity due to differences
in human capital?
A) The median earnings of White men are more than the median earnings of African
Americans.
B) People with graduate degrees usually have higher earnings than people who did not
graduate from high school.
C) Nick Saban, the football coach at the University of Alabama, earns more than an
economics professor.
D) Crab fishermen on the Bering Sea earn more than clerks who sell goldfish at a pet
store.
In general, when marginal benefit is greater than marginal cost, the decision maker
should do _____ of the activity.
A) less
B) that exact amount
C) more
D) none
Figure: Supply and Demand in the Orange Juice Market
(Figure: Supply and Demand in the Orange Juice Market) Look at the figure Supply
and Demand in the Orange Juice Market. The market is currently in equilibrium at point
C. Suppose a hurricane hits Florida, where oranges are grown. What will be the most
likely new equilibrium point in the orange juice market?
A) A
B) B
C) D
D) E
Antitrust policy refers to government:
A) attempts to prevent the acquisition of monopoly power.
B) attempts to encourage the exercise of monopoly power.
C) encouragement of collusion in the marketplace.
D) attempts to limit private enterprise.
A good is subject to a network externality when:
A) the value of the good to an individual is less when a large number of other people
also use the good.
B) the value of the good is determined only by marginal private benefits.
C) an increase in the number of other people using the good increases its value to an
individual.
D) a good yields negative externalities.
The individual mandate is the requirement that:
A) each health care provider must provide care for Medicare patients.
B) each health care provider must provide care for Medicaid patients.
C) each individual must purchase health insurance.
D) everyone must go to school for at least 12 years.
Pollution has _____ and _____.
A) no benefits; only costs
B) benefits; costs
C) no opposition; only advocates
D) short-term effects; very little long-term effect
Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat
and some diesel fuel can go offshore, lower a crab pot, and harvest king crab. As a
result, this common resource is overused. Which of the following policy choices might
produce the socially optimal king crab harvest?
A) Alaska subsidizes the purchase of crab boats.
B) Alaska auctions a limited number of licenses to harvest king crab.
C) Alaska removes taxes on diesel fuel, which lowers the price of diesel.
D) The U.S. and Canadian governments remove trade barriers, which allows for more
trade of products like king crab.
Figure: Tax Incidence
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the
deadweight loss of an excise tax is likely to be greater in panel _____ than in panel
_____.
A) C; D
B) C; A
C) D; A
D) B; A
Figure: The Market for Oranges in South Africa
(Figure: The Market for Oranges in South Africa) Look at the figure The Market for
Oranges in South Africa. In autarky, the price of oranges in South Africa is P1. When
the economy is opened to trade, the price falls to PW and the change in total surplus is
area:
A) O.
B) O + P.
C) M + N + O + P.
D) M + N + O + P + Q.
Figure: A Profit-Maximizing Monopoly Firm
(Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing
Monopoly Firm. This firm’s cost per unit at its profit-maximizing quantity is:
A) $8.
B) $15.
C) $18.
D) $20.
The price elasticity of demand can be found by:
A) examining only the slope of the demand curve.
B) measuring absolute changes in price and quantity demanded.
C) comparing the percentage change in quantity demanded to the percentage change in
price.
D) knowing that when price changes, quantity demanded goes in the opposite direction.
(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social
benefit and cost of various amounts of pollution from a coal mine. If 5 tons of pollution
is produced, the outcome is _____ because _____.
A) efficient; MSB = MSC
B) efficient; MSB > MSC
C) inefficient; MSB > MSC
D) inefficient; MSB < MSC
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. If 1 acre is dedicated to the park, the park is:
A) too large.
B) the socially optimum size.
C) too small.
D) the efficient size.
Wolfgang really likes rutabagas and likes broccoli as well. The price of each good is
$0.60 per pound and Wolfgang is maximizing utility. At the point of maximal utility the
marginal utility of:
A) rutabagas and broccoli are the same.
B) rutabagas is greater than the marginal utility of broccoli.
C) broccoli is greater than the marginal utility of rutabagas.
D) both goods is zero.
Excise taxes that raise the most revenue and cause the least deadweight loss are likely
to be levied on goods for which demand is _____ and supply is _____.
A) inelastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) elastic; elastic
Assuming that diminishing marginal utility applies to both pomegranates and bananas,
if Vanessa buys more pomegranates and fewer bananas, the _____ of pomegranates will
_____, and the _____ of bananas will _____.
A) marginal utility; fall; marginal utility; rise
B) marginal utility; rise; marginal utility; fall
C) total utility; fall; marginal utility; rise
D) marginal utility; rise; total utility; rise
In contrast to perfect competition, a monopoly:
A) produces more at a lower price.
B) produces where MR > MC.
C) may have lower economic profits in the long run.
D) produces less at a higher price.
Figure: Long-Run Average Cost
(Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm
has _____ in the output region from B to C.
A) constant returns to scale
B) decreasing returns to scale
C) increasing returns to scale
D) falling marginal cost
Assuming that the supply curve of cupcakes is upward-sloping and demand for
cupcakes decreases, there is a(n) _____ in _____ surplus.
A) increase; producer
B) increase; consumer
C) increase; total
D) decrease; producer
If your firm is operating in the negatively sloped portion of a long-run average total cost
curve, then your production exhibits:
A) higher wages.
B) increasing returns to scale.
C) decreasing returns to scale.
D) increased input prices.