If, when you consume another piece of candy, your marginal utility is zero, then
A) you want more candy.
B) you have maximized your total utility from consuming candy.
C) you have not yet reached the point of diminishing marginal utility.
D) you should consume less candy.
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.
The price of each good is $10. Calculate the firm’s short-run profit or loss.
A) loss of $6,000
B) profit of $6,000
C) profit of $30,000
D) There is insufficient information to answer the question.
Collusion
A) is rampant in perfect competition as all firms charge the same price.
B) reduces market concentration in an industry.
C) among firms is difficult to maintain because it eliminates long-run economic profit.
D) is more difficult when there are many firms producing differentiated products in an
industry.
Who selects the board of directors of a corporation?
A) the state where the corporation is chartered
B) employees
C) stockholders
D) managers
Zach Greinke’s marginal product as a baseball player would be about the same as a Los
Angeles Dodger and a Kansas City Royal. Why were the Dodgers willing to pay
Greinke a higher salary than he was paid as a Royal?
A) The Dodgers needed a superstar to attract fans to their games. The Royals had no
need to attract fans to their games.
B) The Dodgers play more home games than the Royals. As a result, the Dodgers earn
more revenue from ticket sales that they can use to pay player salaries.
C) Greinke’s marginal revenue product is higher as a Dodger than it was as a Royal.
D) The owner of the Dodgers was under more pressure from the fans and the Los
Angeles media to pay Greinke a higher salary than the Royals were willing to pay.
Assume that air pollution from a copper smelter imposes external costs on people who
live near the smelter. If the victims of the pollution could not legally enforce the right of
their property not to be damaged, the amount of pollution reduction
A) would be significantly less than if the owners of the smelter were legally liable for
damages.
B) would be less than the amount at which the marginal benefit of pollution reduction
equaled the marginal cost.
C) would be the same as if it would be if the owners of the smelter were legally liable.
D) would be too small; the government would have to intervene to bring about an
efficient outcome.
One reason patent protection is vitally important to pharmaceutical firms is
A) successful new drugs are not profitable. If firms are not granted patents many would
go out of business and health care would be severely diminished.
B) the approval process for new drugs through the Food and Drug Administration can
take more than 10 years and is very costly. Patents enable firms to recover costs
incurred during this process.
C) that taxes on profits from drugs are very high; profits from patent protection enable
firms to pay these taxes.
D) the high salaries pharmaceutical firms pay to scientists and doctors make their labor
costs higher than for any other business. Profits from patents are needed to pay these
labor costs.
A decrease in the equilibrium price for a product will result
A) when the quantity demanded for the product exceeds the quantity supplied.
B) when there is a decrease in supply and a decrease in demand for the product.
C) when there is an increase in supply and a decrease in demand for the product.
D) when there is a decrease in demand and a decrease in the number of firms producing
the product.
Which of the following is a normative economic statement?
A) Rising corn prices have increased the price of corn-based ethanol.
B) With rising home prices and falling mortgage interest rates, the amount of home
foreclosures has decreased.
C) The federal government is considering increasing regulations on the use of fossil
fuels to promote the use of wind power.
D) Farmers should not be allowed to grow and sell genetically-modified crops.
Erin and Deidre, two residents in Ithaca, New York, are planning a trip to Boston. Erin,
the sales manager for a large retailer, has to attend a business meeting. Deidre, a college
student on vacation, is planning a leisurely trip to visit friends and relatives. Whose
demand curve for air travel is likely to be more elastic?
A) Erin
B) Deidre
C) There is no difference in their price elasticities of demand.
D) The elasticity of the demand curves for Erin and Deidre cannot be determined
without more information.
The Walt Disney Company is in a position to use a two-part tariff policy in setting
prices for admission and rides at Disney World. If this strategy resulted in maximum
profit, Disney would convert all consumer surplus into profit. Which of the following
explains why Disney does not maximize its profits from admission and rides?
A) To maximize its profits, Disney would have to know the demand curves of each of
its customers. Since this is not possible, Disney is not able to convert all consumer
surplus into profit.
B) Disney purposely charges less than the profit-maximizing price for admission to
Disney World because it does not want to risk alienating its customers.
C) Disney purposely charges less than the profit-maximizing price for admission to
Disney World in order to earn more profit from sales of food, lodging, and other related
services.
D) Disney does not charge the profit-maximizing price for admission because it wants
to keep admission affordable for children who will be more likely to visit Disney World
when they become parents.
Figure 2-14
Refer to Figure 2-14. Which two arrows in the diagram depict the following
transaction: Dorian Gray hires “Wild Oscar,” a professional portrait artist, to paint his
picture.
A) J and M
B) K and G
C) K and M
D) J and G
Table 14-8
Two rival oligopolists in the athletic supplements industry, the Power Fuel Company
and the Brawny Juice Company, have to decide on their pricing strategy. Each can
choose either a high price or a low price. Table 14-8 shows the payoff matrix with the
profits that each firm can expect to earn depending on the pricing strategy it adopts.
Refer to Table 14-8. If the two firms collude, is there an incentive for either to cheat on
the collusion agreement?
A) No, neither firm can gain by cheating.
B) Yes, but only Brawny Juice is in a position to gain by cheating.
C) Yes, but only Power Fuel is in a position to gain by cheating.
D) Yes, either firm can gain if it, alone, cheats.
Suppose Alexander is successful in establishing a profitable market for his vegan
bakery in what is a monopolistically competitive industry. In the long run, Alexander
will most likely find it ________ to remain profitable as he faces ________ competition
in the vegan bakery market.
A) harder; more
B) harder; less
C) easier; more
D) easier; less
Figure 17-6
Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner
Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its
salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its
salespeople earn $125 per vacuum cleaner., with wages capped at $5,625 per month for
sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales
below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of
$125 per vacuum cleaner sold, with no wage cap.
Refer to Figure 17-6. Salespeople would be indifferent to the two pay schemes if their
monthly sales were
A) less than 20 vacuum cleaners.
B) between 20 and 30 vacuum cleaners.
C) between 30 and 45 vacuum cleaners.
D) more than 45 vacuum cleaners.
Figure 13-9
Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically
competitive firm that is earning economic profits?
A) Panel A
B) Panel B
C) Panel C
D) Panel A and Panel B
The basic activity of a firm is
A) to set the prices of its products as high as possible.
B) to compete with other firms that produce similar products.
C) to provide jobs for its employees.
D) to use inputs to produce outputs of goods and services.
The five competitive forces model was developed by
A) Michael Porter.
B) John Nash.
C) Michael Spence.
D) Porter Smith.
Which of the following refers to the increase in the usefulness of a product as the
number of consumers who use it increases?
A) positive externalities
B) network externalities
C) external marginal utility
D) the impact of celebrity endorsements
When the coupon rate on newly issued bonds decreases relative to older, outstanding
bonds, what happens?
A) The market price of the older bond falls in the secondary market.
B) The market price of the older bond rises in the secondary market.
C) Older bonds can still be sold at their face value.
D) Older bonds will sell for more than their face value.
If, in a competitive market, marginal benefit is less than marginal cost
A) the net benefit to consumers from participating in the market is less than the net
benefit to producers.
B) the government must force producers to raise prices in order to achieve economic
efficiency.
C) the output is greater than the equilibrium quantity.
D) the output is less than the equilibrium quantity.
Figure 15-17
Your college decides to offer a psychology course as a MOOC that can be taken by
students anywhere in the world, whether they are actually enrolled in your college or
not. The demand and cost situation for the MOOC is shown in the figure.
Refer to Figure 15-17. An economics professor argues: “I think the course should be
priced so as to achieve economic efficiency.” Which price should this faculty member
favor?
A) $0
B) $40
C) $88
D) $150
Table 2-9
Table 2-9 shows the number of labor hours required to produce a canoe and a sailboat in
Guatemala and Honduras.
Refer to Table 2-9. What is Honduras’s opportunity cost of producing one canoe?
A) 1/5 of a sailboat
B) 5 sailboats
C) 5 sailboats
D) 6 sailboats
Bubba’s Hula Shack bar and bistro has begun giving customers who can show proof
that they arrived at the establishment by public transportation a 10 percent discount on
their total bill. All else equal, customers who arrive by public transportation to take
advantage of Bubba’s Hula Shack discount have a ________ for the services of the
establishment than customers who drive to the establishment.
A) higher price elasticity of demand
B) lower price elasticity of demand
C) higher price elasticity of supply
D) lower price elasticity of supply
The demand curve for a public good is also called the
A) total welfare curve.
B) marginal social benefit curve.
C) total social benefit curve.
D) total willingness-to-pay curve.
The public choice model assumes that government policymakers
A) must promote the public interest at the expense of their own self-interests in order to
be re-elected.
B) will pursue their self-interests in personal affairs but only if it does not conflict with
the public interest.
C) will often act irrationally in their personal affairs, but will act rationally when they
promote the public interest.
D) are likely to pursue their own self-interests, even if their self-interests conflict with
the public interest.
Figure 11-15
Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry
pies at the lowest cost?
A) combination e: 10 hours of labor and 48 units of capital
B) combination f: 40 hours of labor and 24 units of capital
C) combination g: 60 hours of labor and 14 units of capital
D) combination h: 60 hours of labor and 9 units of capital
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade.
Refer to Table 9-6. If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are
traded, how many hats will Denmark gain compared to the “without trade” numbers?
A) -150
B) 0
C) 150
D) 1,050
Which of the following is not a reason why firms experience economies of scale?
A) Technology can make it possible to increase production with a smaller increase in at
least one input.
B) Workers and managers can become more specialized, enabling them to be more
productive.
C) Larger firms may be able to purchase inputs at lower costs than smaller competitors.
D) As output increases, the managers can begin to have difficulty coordinating the
operations of their firms.
What is meant by the term “rational ignorance”?
A) It refers to the absence of a negative incentive, for example, a fine for not voting,
which results in a low voter turnout.
B) It refers to a situation where one policymaker deliberately approves a bill he does
not support in exchange for a future favorable vote for his own cause.
C) It means the lack an economic incentive for voters to become informed about a
pending legislation.
D) It refers to the fact that policymakers and their constituents have different ideas of
what it means to behave rationally and each party deliberately ignores the other’s view.
Voluntary exchange between buyers and sellers generates ________ in a market
economy.
A) scarcity
B) allocative efficiency
C) productive efficiency
D) equity
The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian
tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?
A) 2 1/2 Russian tea cakes
B) 2/5 of a Russian tea cake
C) $2.50
D) $1.00
Yield management and price discrimination have enabled firms to increase profits and,
at the same time
A) reduce the cost of production.
B) capture some consumer surplus.
C) reduce transactions costs.
D) transfer some producer surplus to consumers.
Which of the following describes a situation in which every good or service is produced
up to the point where the last unit provides a marginal benefit to consumers equal to the
marginal cost of producing it?
A) productive efficiency
B) allocative efficiency
C) marginal efficiency
D) profit maximization