One reason for selecting a section of microeconomics for which attendance is part of
the grade (as opposed to one where it is not) is that it serves as a commitment device
that will get you to attend class.
Schumpeter and Galbraith believed that concentrated industries had higher rates of
technological advances than less concentrated industries.
All models of oligopoly involve pricing above marginal cost and output levels above
the competitive level.
The present value of $100 in one year is $86.96 when the interest rate is 15%.
The share of industry output accounted for by the top firms in an industry is the
industry’s concentration ratio.
Cartels, tacit collusion, and predatory pricing are not illegal under U.S. antitrust laws.
A firm will use land up to the point at which the MRP of land is equal to the price of
land.
Assuming well-defined indifference curves, when marginal utility is zero, total utility is
at a maximum.
Monopolistically competitive firms almost always fully realize their economies of
scale.
A negative cross-price elasticity between two goods implies that the two goods are
substitutes.
In economics, the term capital refers only to some form of money.
Marginal utility of income is diminishing for a risk averse individual.
For the purpose of defining taxable income, capital gains count as income only when
they are realized.
Moving from socialism to capitalism as fast as possible is known as shock therapy.
Horizontal differentiation makes products better for some consumers and worse for
others.
Since a monopolistically competitive firm has a monopoly over the particular product it
produces, the monopoly guarantees the firm a profit in the short run.
When all players play their best strategy given what their competitors are doing, they
are following their dominant strategy.
A maximin strategy will maximize the minimum payoff that can be earned.
The rate of unemployment is a topic of microeconomics.
Advertising provides consumers with product information and can promote
competition.
Cartels are more successful when members play by the rules and the industry faces an
elastic demand.
Economists would classify the New York Mets as a firm.
If after a change in an allocation it can be demonstrated that the value of the gains
exceeds the value of the losses, then the change is said to be potentially efficient.
A quota is a restriction on imports.
The United States is the only country to face decreasing inequality in their income
distribution in the last several decades.
The best combination of inputs at one level of production must always be best at other
levels.
The notion that buyers determine what will be produced by choosing what they
purchase is called a command economy.
Jim used to be very careful with his car. However, once he bought full auto insurance
on it, he stopped turning on his alarm or even locking it when parking it. This is an
example of moral hazard.
The Five Forces Model illustrates the forces that determine the level of product
differentiation and price competition in an industry.
Perfectly competitive firms sell homogeneous products.
Partial equilibrium analysis is the process of examining the equilibrium conditions for
households and firms and in individual markets separately.
Assets minus liabilities equals net worth.
Private ownership of resources leads to economic efficiency.
Ceteris paribus literally translated means, “buyer beware.”
You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental
store. You will earn an economic profit if
A) the return on your investment is between 0 and 5%.
B) the return on your investment is 5%.
C) the return on your investment is greater than 5%.
D) the return on your investment is 10% or greater.
Assume that the marginal cost of manufacturing swimming pool chemicals does not
include the cost of the damage to the environment as a result of pollution. By producing
where P = MC, the firm will be producing ________ the efficient amount of chemicals.
A) exactly
B) more than
C) less than
D) sometimes more and sometimes less than
Entry to and exit from a ________ market are ________.
A) oligopolistic; easy
B) perfectly competitive; difficult
C) contestable; difficult
D) contestable; easy
Refer to Figure 7.11. The firm’s isocost line could shift from CD to AB if
A) the price of capital increased.
B) the firm’s total expenditures decreased by 33%.
C) the price of capital and labor each increased by 33%.
D) either B or C
Draw a production possibility frontier. Find a point that represents a combination of
outputs that is not currently feasible. Label it point A. Find a point that represents
efficient production. Label it point B. Find a point that represents inefficient production.
Label it point C.
The Russian transition to a market economy with free labor markets and uncontrolled
prices means that
A) prices will still be controlled by government.
B) full employment and low prices can be maintained.
C) wages will still be determined by government.
D) unemployment and higher prices are inevitable.
Bacon is used to produce bacon cheeseburgers, and the price of bacon decreases. In the
market for bacon cheeseburgers, you would expect that
A) the demand for bacon cheeseburgers would increase, and the price of bacon
cheeseburgers would increase.
B) the demand for bacon cheeseburgers would decrease, and the price of bacon
cheeseburgers would fall.
C) the supply of bacon cheeseburgers would decrease, and the price of bacon
cheeseburgers would increase.
D) the supply of bacon cheeseburgers would increase, and the price of bacon
cheeseburgers would decrease.
________ is specifically designed to take care of the elderly who are poor.
A) Medicare
B) The Supplemental Security Income program
C) Medicaid
D) The Social Security system
Firms stop producing tapes and start producing compact discs because people prefer
compact discs to tapes. This will
A) make the distribution of outcome more equitable.
B) make the economy more stable.
C) improve efficiency.
D) make the economy less stable.
Which of the following will definitely occur when there is a simultaneous increase in
demand and an increase in supply?
A) an increase in equilibrium price
B) a decrease in equilibrium price
C) an increase in equilibrium quantity
D) a decrease in equilibrium quantity
Figure 2.3
Refer to Figure 2.3. Increasing opportunity costs are best depicted by the production
possibility frontier in panel
A) A.
B) B.
C) C.
D) D.
Most of China’s recent growth has been fueled by ________, and most of India’s recent
growth has been fueled by ________.
A) manufacturing; services
B) services; manufacturing
C) manufacturing; manufacturing
D) services; services
Average fixed costs ________ as output ________.
A) remain constant; changes
B) rise; rises
C) fall; rises
D) fall; falls
The concept of equity would explain the redistribution from the rich to the poor which
is achieved from a tax system that requires taxes to
A) fall when income rises.
B) rise when income rises.
C) remain stable when income rises.
D) be unrelated to income.
Which of the following is true of a market economy?
A) In its pure form, it is also known as a command economy.
B) Decisions are regulated by a central agency.
C) The government answers the basic economic questions of what gets produced, how
it gets produced, and who gets it.
D) It relies on millions of individual economic decisions to determine economic
outcomes.
If at the current output of X the PX < MCX, then society gains by
A) producing more X.
B) producing less X.
C) lowering the price of X.
D) increasing the cost of producing X.
Figure 5.2
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment
________ of the demand curve, the demand is elastic.
A) AC
B) BE
C) CF
D) AF
Suppose a new government policy generates $6,000 of benefits for local businesses and
$4,000 of costs. We can best describe the policy as
A) Pareto efficient.
B) inefficient.
C) potentially efficient.
D) equitable.
A monopolist always ________ if its ATC schedule is everywhere above its demand
schedule.
A) shuts down
B) breaks even
C) suffers a loss
D) earns a positive profit
The market for restaurant pizza in Chicago is currently in equilibrium at a price of $8
and 2,000 pizzas are sold each day. Explain what will happen to the equilibrium price
and quantity of pizzas sold and why (which curve has changed) for each of the
following situations:
(a.) Delivery personnel form a labor union and secure a higher wage of $7.50 per hour
(a large increase in their wage).
(b.) Fast-food hamburger restaurants (Burger King & McDonalds) cut their prices in
half.
Table 3.2
Refer to Table 3.2. In this market there will be an excess supply of 1,000 cheeseburgers
at a price of
A) $5.
B) $6.
C) $7.
D) $9.
Table 16.1
Refer to Table 16.1. This salt processing firm is perfectly competitive and is NOT
forced to take damage costs into account. If the market price of salt is $60 a ton, the
firm will produce ________ tons of salt.
A) 0
B) 2
C) 3
D) 4
A voluntary exchange between Mike (the purchaser) and Wayne (the seller) occurs
because
A) Mike stands to gain and Wayne to lose.
B) Mike stands to lose and Wayne to gain.
C) they both gain from the transaction.
D) they had no choice.
Referring to the Economics in Practice on page 320: If restaurants are required to
include calorie and fat-content labels on menus, the demand curve for high-fat,
high-calorie menu items will most likely shift to the _____, resulting in ________ in the
equilibrium price of these items.
A) right; an increase
B) right; a decrease
C) left; an increase
D) left; a decrease
Table 14.3
B’s Strategy
Refer to Table 14.3. Firm A’s dominant strategy is
A) to advertise.
B) to not advertise.
C) dependent on what Firm B does.
D) indeterminate from this information, as no information is provided on Firm A’s risk
preference.
A factor market is
A) where goods are exchanged.
B) where resources are exchanged.
C) where goods are made.
D) organized by government.
Table 10.2
Refer to Table 10.2. If workers are paid $150 per day, then the firm is profit maximizing
when it hires ________ workers.
A) two
B) three
C) four
D) five
Which of the following will definitely occur when there is a simultaneous decrease in
demand and a decrease in supply?
A) an increase in equilibrium price
B) a decrease in equilibrium price
C) an increase in equilibrium quantity
D) a decrease in equilibrium quantity
Private goods are ________ in consumption, and their benefits are ________.
A) rival; excludable
B) nonrival; excludable
C) nonrival; nonexcludable
D) rival; nonexcludable
Carlos can buy either sushi or eggrolls. If the prices of sushi and eggrolls triple and so
does Carlos’s money income, we can deduce that Carlos’s budget constraint will
A) shift in but remain parallel to the old one.
B) shift out but remain parallel to the old one.
C) swivel in so that the slope of the budget constraint is tripled.
D) remain unchanged.
The concept of opportunity cost can be applied to the analysis of ________
decision-making processes.
A) only economy-wide
B) only global
C) only small-scale
D) any
When a perfectly competitive firm weighs price and marginal cost and no externalities
exist, it is weighing the ________ benefits to society of additional production against
the ________ costs to society of that production.
A) full; full
B) marginal; marginal
C) marginal; full
D) full; marginal
Up to which point will a perfectly competitive firm continue to invest? Explain
carefully.
Using Scenario 2 suppose Jennifer has eliminated three of the answers but is unsure of
which of the remaining two answers are correct. Determine whether it is rational for
Jennifer to guess.
Explain why some researchers conclude that Americans are becoming more obese
because of the existence of fast-food restaurants. If fast-food restaurants have been
around for over 50 years why is the trend toward obesity only a recent one? Explain.
Define opportunity cost. Given the definition of opportunity cost, explain what is meant
by the statement “There is no such thing as a free lunch.”
Explain why a freeway isn”t always considered to be a pure public good.
Assume the United States televison manufacturing industry accuses the Japanese
television manufacturers of dumping. Why should consumers not necessarily be
worried about this practice?
What is the relationship between the marginal product curve and the total product
curve?
John’s income has just increased by $10,000 per year. If Ramen noodles is aninferior
good in John’s opinion, what will happen to his demand for Ramen noodles? Show your
answer using a graph.
Suppose the demand for bananas increases. Explain how the price of bananas adjusts
after the increase in demand.
Why does the model of perfect competition imply that firms will produce the products
that households want the most?
There are two people in a society: Person A and Person B. The society is going to put
up streetlights, which are a public good. Person A’s willingness to pay is the following:
$110 for the first streetlight; $60 for the second streetlight; and $10 for the third
streetlight. Person B’s willingness to pay is the following: $60 for the first streetlight,
$50 for the second streetlight, and $5 for the third streetlight. Draw the market demand
curve for streetlights. If the marginal cost of putting up streetlights is $110, what is the
optimal level of streetlights?
Scenario 1 – Suppose a testing company that administers college entrance exams is
concerned about random guessing. The multiple-choice exams that they administer
contain four choices with only one correct answer. Instead of simply awarding points
for correct answers and zero points for incorrect answers they choose instead to award 9
points for every correct answer and subtract 5 points for every incorrect answer.
Use Scenario 1 to answer the following question. What is the minimum number of
answers a student would have to be able to eliminate as “incorrect” in order to make
guessing rationale?
What is the theory of comparative advantage?
Suppose that Jeanna’s income rises. If tomatoes are a normal good, what will happen to
the quantity of tomatoes purchased by Jeanna? Is this an income effect, a substitution
effect, or both? Explain.
Refer to the graph above. What is the opportunity cost of going from point A to point
B? What is the opportunity cost of going from point B to point A?
Explain what is meant by capital.
A globe is a model. However, it lacks much of the detail that one would find on a map.
Does that make the globe an inferior model? Why not?
Assume the properties of normal indifference curves. Where will a consumer maximize
their utility?