Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho
company. If it is a rainy year and he invests only in the sunglass company, he will lose
$5,000. However, if it is a rainy year and he invests only in the rain poncho company,
he will earn $10,000. If it is a sunny year and he invests only in the sunglass company,
he will earn $10,000; if he invests only in the rain poncho company, he will lose $5,000
in a sunny year. There is a 50% chance of a sunny year and a 50% chance of a rainy
year.
(Scenario: Diversification) Look at the scenario Diversification. If Morris invests all of
his money in the rain poncho company, what is his expected gain or loss?
A) a loss of $2,500
B) to break even
C) a gain of $2,500
D) a gain of $10,000
Figure: The Market for Clams
(Figure: The Market for Clams) Look at the figure The Market for Clams. The
government imposes a quota limiting sales of clams to 1,000 pounds. According to the
figure, the quota rent per pound in this case is:
A) $7.50.
B) $5.00.
C) $2.50.
D) The quota rent cannot be determined from the information provided.
If the percentage change in the quantity demanded of a good is greater than the
percentage change in income and in the same direction, then this good will have an
income elasticity _____1, and it is a(n) _____ good.
A) greater than; normal
B) less than; normal
C) equal to; normal
D) less than; inferior
The marginal social cost of a common resource is _____ than an individual’s marginal
cost, and without government intervention the market will allow provision of _____ of
the common resource than is socially optimal.
A) less; more
B) less; less
C) greater; more
D) greater; less
Which of the following is NOT a characteristic of monopolistic competition?
A) product differentiation
B) lack of barriers to entry and exit in the long run
C) many competing producers
D) tacit collusion
For an economist, the cost of something is:
A) the amount of money you paid for it.
B) what you gave up to get it.
C) always equal to its market value.
D) the quantity of resources used to produce it.
Assume that the supply curve for corn is upward-sloping. In the market for corn, a
primary input in the production of ethanol, total surplus _____ when the price of
ethanol increases.
A) increases
B) decreases
C) does not change
D) The answer cannot be determined without information about the supply curve.
Which of the following is a key factor in the effectiveness of well-functioning markets?
A) outcomes that are equitable for consumers and producers
B) the role of the government to deliver economic signals to consumers and producers
C) a significant degree of government intervention to maximize efficiency
D) your right to use and dispose of your private property as you see fit
In a particular insurance market, there is a decrease in the degree of risk aversion
among buyers. Holding everything else constant, the equilibrium premium will _____
and the equilibrium quantity of insurance will _____.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
An “either”or” decision entails:
A) deciding how much of an activity to do.
B) a choice between two activities.
C) calculating marginal costs for each activity.
D) calculating the marginal benefits for each activity.
For which of the following decisions would marginal analysis be relevant?
A) spending $1,000 on a summer vacation or on painting your house
B) deciding how much to spend on a summer vacation
C) buying a new car or a second-hand car
D) eating dinner at home or going out to a restaurant for dinner
Figure: Comparative Advantage and the Production Possibility Frontier
(Figure: Comparative Advantage and the Production Possibility Frontier) Look at the
figure Comparative Advantage and the Production Possibility Frontier. _____ has an
absolute advantage in the production of _____ and a comparative advantage in the
production of _____.
A) The United States; computers; roses
B) Colombia; computers; roses
C) The United States; roses; computers
D) Colombia; roses; roses
Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The
highest attainable level of utility, given budget constraint FL, is at point:
A) G.
B) H.
C) I.
D) J.
Christine has a linear demand curve for candy. If she wants to see her consumer surplus
_____, she would like to see a(n) _____ in the market price of candy.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) not change; decrease
The slope of a typical production possibility frontier is:
A) 0.
B) vertical.
C) positive.
D) negative.
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 producer surplus will _____ to
area _____.
A) fall; N + Q
B) fall; Q
C) rise; M + N + O + P
D) rise; M + N + O + P + Q
Figure: Shifts in Demand and Supply III
(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and
Supply III. The figure shows how supply and demand might shift in response to specific
events. Suppose scientists discover that eating asparagus slows the aging process.
Which panel BEST describes how this will affect the market for asparagus?
A) panel A
B) panel B
C) panel C
D) panel D
A binding rent-control price ceiling results in all of the following EXCEPT:
A) inefficiently low quantity of the good exchanged.
B) wasted resources of consumers caused by time spent searching for the good.
C) inefficient allocation of the good to consumers.
D) inefficiently high quality of the good being sold.
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 neither CableNorth nor CableSouth advertises, then without any
collusion:
A) CableNorth will begin advertising to maximize profits.
B) CableSouth will begin advertising to maximize profits.
C) there will be no tendency for either CableNorth or CableSouth to begin advertising.
D) there is a tendency for both CableNorth and CableSouth to begin advertising.
(Table: Consumer Surplus and Phantom Tickets) The table Consumer Surplus and
Phantom Tickets shows each student’s willingness to pay for a Phantom of the Opera
ticket. Assume that each student wants to buy one ticket. If the price of a ticket to see
Phantom of the Opera is $50, then Robert’s consumer surplus is:
A) $60.
B) $50.
C) $10.
D) $240.
(Table: Firm’s Willingness) The table Firm’s Willingness explains the relation between
the number of reports a firm is willing to produce and the lowest price it is willing to
accept to prepare those reports. Which of the following market prices would result in
four reports being produced?
A) $2
B) $6
C) $8
D) $11
(Table: Marginal Utility per Dollar of M&Ms) Look at the table Marginal Utility per
Dollar of M&Ms. The price of M&Ms is $2 per bag. The marginal utility per dollar of
the fourth bag of M&Ms is:
A) 1.
B) 2.
C) 7.5.
D) 15.
G. Reecy’s Hamburger Joint is a fast-food restaurant. Which of the following is a factor
of production?
A) the raw meat used for the hamburgers
B) the hamburger buns
C) the cook
D) the concentrate that is diluted to make the soft drinks
Marginal analysis studies how individuals decide:
A) whether to live on the margin of society.
B) whether to do a bit more of an activity versus a bit less of it.
C) whether to go to college.
D) how much down payment to make when buying stocks.
Jake considers fries and onion rings perfect substitutes. The indifference curve between
fries and onion rings must be:
A) a right angle.
B) concave.
C) perfectly vertical.
D) a straight line.
If demand and supply are both very inelastic, a decrease in the rate of an excise tax will
likely:
A) decrease government revenue.
B) increase government revenue.
C) not affect government revenue.
D) make demand and supply both elastic.
A regressive tax:
A) takes a higher percentage of income as income rises.
B) rises less than in proportion to income.
C) takes a fixed percentage of income regardless of the taxpayer’s level of income.
D) takes a larger share of the income of high-income taxpayers than of low-income
taxpayers.