Firms will choose a tit-for-tat strategy if they:
A) expect that price wars will ultimately provide benefits for the dominant firm.
B) believe that the firms in the industry will be competing with each other for a long
time.
C) do not believe interdependence is a prominent characteristic of the industry.
D) are sure that cheating behavior will go unnoticed.
If personal income up to and including $30,000 is not taxed, income of $30,001 to
$60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family
earning an income of $100,000 will pay a MARGINAL tax rate of:
A) 5%.
B) 10%.
C) 13%.
D) 25%.
Two neighbors, Molly and Sandy, are separated by a white picket fence. Each neighbor
has a garden that grows tomatoes and peppers. To gain from trade, _____ can trade
_____ to _____ for _____ if _____ is the more efficient grower of peppers.
A) Molly; tomatoes; Sandy; peppers; Molly
B) Sandy; tomatoes; Molly; peppers; Sandy
C) Sandy; peppers; Molly; tomatoes; Molly
D) Molly; peppers; Sandy; tomatoes; Molly
Farmers in developing countries want the United States to reduce the subsidies that it
gives to U.S. farmers because subsidized agricultural products from the United States:
A) lead to agricultural surpluses and lower prices for farmers in developing countries.
B) raise the world price of agricultural products.
C) have led to a global shortage of agricultural products.
D) have led to an increase in the demand for agricultural products from the developing
world.
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. The marginal product of the fourth worker is:
A) 7.
B) 21.
C) 3.
D) 15.
The basis of the circular-flow diagram is that:
A) the best models avoid making assumptions.
B) goods and services flow in a circle in the factor market.
C) resources are sold along with goods and services in the resource market.
D) the flow of money into each market or sector is equal to the flow of money coming
out of that market or sector.
Which of the following goods is MOST likely to display increasing marginal utility
over some range?
A) chicken during the 1920s, when it was considered a luxury good
B) paint, because you need enough to paint at least one entire room
C) lobsters, which are so expensive that you must eat two to get your money’s worth
D) peanut butter and jelly sandwiches
The problem of adverse selection:
A) occurs when sellers (who know more than buyers about the quality of the product)
deliberately select inferior products to sell.
B) is also referred to as the moral hazard problem.
C) can result in an overall increase in the gains from trade.
D) occurs when an employer fires the wrong person.
Which of the following is TRUE of a normal good?
A) When income increases, the demand for the good remains unchanged.
B) When income increases, the demand for the good decreases.
C) When income increases, the demand for the good increases.
D) Income and the demand are unrelated.
Well-functioning markets allow:
A) mutually beneficial trades to take place.
B) consumers to gain at the expense of producers.
C) producers to reap greater benefits, since they have greater power in the market.
D) property rights to be unnecessary components of effective distribution.
The most likely effects of tariffs and/or import quotas are to _____ prices and to _____
consumption of the protected goods in the importing country.
A) raise; raise
B) raise; lower
C) lower; raise
D) lower; lower
Which of the following will NOT cause an increase in the supply of cornflakes?
A) an increase in the price of cornflakes
B) a cost-saving improvement in the technology of corn production
C) a reduction in the price of corn
D) the expectation by producers that the price of cornflakes will fall in the future
If tortilla chips are a normal good, when there is an increase in income, equilibrium
price _____ and equilibrium quantity _____.
A) decreases; increases.
B) decreases; decreases.
C) increases; increases.
D) increases; decreases.
Figure: Income Tax Payments
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel
or panels best represent the effects of a proportional income tax?
A) A
B) B
C) C
D) A and B
Within the labor”leisure framework, when an individual’s income effect is stronger than
the substitution effect from a wage increase, it will result in:
A) an inverted U-shaped labor supply curve.
B) a labor supply curve that is upward-sloping but from the origin.
C) a backward-bending labor supply curve.
D) an upward-sloping labor supply curve.
Diego spends all of his income on milkshakes and french fries. At his current
consumption levels the marginal utility of one milkshake and the marginal utility of one
order of french fries are equal. According to the optimal consumption rule:
A) Diego is maximizing his utility.
B) Diego is maximizing his utility only if one milkshake and one order of french fries
have the same price.
C) Diego should buy more milkshakes and fewer fries if a milkshake costs more than an
order of fries.
D) Diego will maximize his utility by specializing in consumption and buying either
milkshakes or fries but not both.
Suppose the government decides to help poor families with kids by subsidizing the
purchase of milk. The subsidy takes the form of a 50% discount in the price of milk.
Suppose also that poor families buy only milk and Spam (an inferior good). What
happens to the amount of Spam poor families buy?
A) It increases.
B) It decreases.
C) It stays the same.
D) It depends on the shape of the family’s indifference curve.
(Table: Johnson’s Income and Expenditures) Look at the table Johnson’s Income and
Expenditures. Johnson’s income elasticity of demand for magazines is:
A) negative.
B) 0.
C) between 0 and 1.
D) 1.
A market produces too much of a good when the price of the good is:
A) greater than the marginal social cost of providing it.
B) equal to the marginal social cost of providing it.
C) less than the marginal social cost of providing it.
D) equal to 1.
When the market does NOT result in an efficient allocation of scarce resources,
economists say there has been:
A) market dropout.
B) normative economics.
C) market disincentives.
D) market failure.
Figure: Model of a Market for a Common Resource
(Figure: Model of a Market for a Common Resource) The figure Model of a Market for
a Common Resource shows the intersection of the private supply and demand curves.
Without any consideration of the marginal social cost of using a common resource, the
quantity of the common resource used at Q will be:
A) larger than is socially desirable.
B) smaller than is socially desirable.
C) efficient.
D) indeterminate without more information.
A demand curve is generated from indifference curves by changing:
A) the price of both goods simultaneously.
B) the price of one good.
C) income.
D) utility.
Which of the following is a positive externality?
A) Sam dug a pond so he could go fishing, but the pond has contributed to an explosion
of mosquitoes in your neighborhood.
B) Sam has dozens of cats, and they come into your yard to hunt the birds that come to
your birdbath.
C) Sam buys a dilapidated house, renovates it, and increases the property values of all
houses in the neighborhood.
D) Liquid waste from Sam’s chicken farm flows into a neighbor’s well water.
Figure: Marginal Benefits and Marginal Costs
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores (MB) but subtracts points from accounting scores (MC). The marginal benefit of
studying economics for two hours is _____ points, and the marginal cost is _____
points.
A) 40; 0
B) 30; 10
C) 20; 20
D) 10; 30
Figure: Kristin’s Budget Line
(Figure: Kristin’s Budget Line) Look at the figure Kristin’s Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then, the price of apples increases to
$3 each and the price of cappuccino remains unchanged. As a result of the price change,
Kristin’s optimal consumption bundle changes, reflected by a decrease in the
consumption of both apples and cappuccinos. If Kristin is to maintain the same level of
utility as before the price change, she must:
A) increase her income.
B) decrease her income.
C) keep her income the same, since only one good’s price changed.
D) increase her income by $2.
(Table: Optimal Choice of Milk and Honey) Look at the table Optimal Choice of Milk
and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal’s
income is $16. Assuming that Hal spends all of his income on honey and milk, if he
buys 1 jar of honey, he can buy _____ gallons of milk, and his total utility will be
_____.
A) 6; 176
B) 4; 132
C) 3; 44
D) 2; 60
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
If one wished to use a proportional or flat tax structure, one should use proposal _____,
in which the percentage of income taxed is _____.
A) 1; 20%
B) 2; 10%
C) 3; 20%
D) 2; 20%
The BEST example of making a choice at the margin is whether to:
A) buy a new computer.
B) quit your job.
C) eat another slice of pizza.
D) attend college.
Average total cost is:
A) the change in variable cost divided by the change in quantity.
B) total cost divided by quantity.
C) the change in quantity divided by the change in labor costs.
D) total cost times quantity.
(Table: Production of Cabinets) Look at the table The Production of Cabinets. After the
_____ worker the firm begins to have diminishing returns to labor.
A) first
B) second
C) third
D) fourth