According to economic theory, a monopolist would hire a lobbyist only if the expected
marginal benefit of lobbying exceeded the marginal cost.
Answer:
If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100
bushels, the price elasticity of supply has to be 100.
Answer:
Trade sanctions imposed on Iraq that limited Iraq’s production of oil after the 1990 Gulf
War on the oil market are best shown graphically with a price ceiling below equilibrium
price.
Answer:
The production possibility model can be used to demonstrate the concept of opportunity
cost.
Answer:
Only marginal costs, not sunk costs, affect economic decisions if individuals are
rational.
Answer:
In perfect competition, price is equal to marginal revenue.
Answer:
When government uses the judgment by structure criterion, a firm is considered a
monopoly only if, for example, it charges excessive prices.
Answer:
If the principle of increasing marginal opportunity cost holds, the opportunity cost of
producing each additional unit of a good should fall as production of that good rises.
Answer:
Usually policy makers ask advice from economists whose values are very different
from their own.
Answer:
Government attempts to offset market failures can prevent the market from dealing with
a problem more effectively.
Answer:
Government provides secondary education because of its private good aspects.
Answer:
Only money prices affect incentives; shadow prices do not.
Answer:
Traditional models see no role for the government in pushing individuals toward the
preferred equilibrium.
Answer:
If the government’s goal is to alter people’s behavior through taxation, taxing goods
with relatively elastic demand and supply would be most effective.
Answer:
Potential profits encourage new firms to try to figure out ways to break down methods
of protecting monopolies.
Answer:
Economies of scale do not exist in the presence of indivisible setup costs.
Answer:
The oligopoly model is the only model that explicitly considers how the pricing and
output decisions of one firm affect other firms.
Answer:
Steve has two choices for taking classes. Each is three credits and meets three hours a
week, so we assume they have equal monetary costs. If Steve chooses to take a modern
dance class instead of an economics class, it must be that for Steve the opportunity cost
of taking a modern dance class exceeds the opportunity cost of taking an economics
class.
Answer:
A contract that makes a manager’s salary dependent on total profit would be a type of
incentive-compatible contract.
Answer:
Unlike excise taxes, price ceilings create no deadweight loss.
Answer:
Given a downward sloping demand curve, a tax on the supply of a good will result in an
increase in equilibrium price that is less than the amount of the tax.
Answer:
A price floor causes excess demand, resulting in the need to ration by some means other
than price.
Answer:
The principle of diminishing marginal utility states that people don’t enjoy consuming
more of a good.
Answer:
If the law of diminishing marginal productivity holds true, both average total cost and
marginal cost must diminish as output increases.
Answer:
A firm will continue to operate in the long run as long as price exceeds long-run
average variable cost.
Answer:
Households supply factors of production to business and are paid by business for doing
so. The market where this interaction takes place is called the factor market.
Answer:
Private property rights are essential to market economies.
Answer:
At the planned output level, short-run average total cost equals long-run average total
cost, but at all other points, short-run average total cost is higher than long-run average
total cost.
Answer:
According to the principle of rational choice, a consumer should spend money on those
goods which provide the most marginal utility per dollar.
Answer:
“Leaving money on the table” refers to the potential gains to be made when people act
irrationally.
Answer:
Membership in the Group of Five consists of both developed and developing countries.
Answer:
The profit-maximizing output level for a monopolist occurs where marginal revenue
equals marginal cost.
Answer:
An improvement in the technology for producing a good will shift the supply curve for
that good to the left.
Answer:
The fact that U.S. managers’ salaries are substantially higher than the salaries of
comparable managers in Japan may be related to the fact that:
A. the demand for CEOs has decreased.
B. the supply of CEOs has decreased.
C. there are no government controls on CEOs’ earnings in the United States.
D. there are more natural monopolies in the United States.
Answer:
“We should support the market because it is efficient” is an example of:
A. positive economics.
B. normative economics.
C. objective economics.
D. negative economics.
Answer:
Public television periodically runs pledge drives to raise money. Only a small
percentage of the people who benefit from public television are willing to pay. What do
economists call the people who do not pay?
A. Free riders
B. Excludables
C. Adverse selectors
D. Thieves
Answer:
When people heard that there was a shortage of Furby dolls, they wanted even more of
them. Because of this effect the pressure on the price of these dolls increased. The price
of the dolls remained the same however. Thus, the shortage of these dolls:
A. increased.
B. decreased.
C. did not change.
D. may have increased or decreased.
Answer:
If MR = MC, a monopolist should:
A. decrease production.
B. increase production.
C. maintain the same level of production.
D. stop producing.
Answer:
Refer to the graph shown, which depicts a perfectly competitive firm. If the price of the
product is $8 and the firm maximizes profit:
A. the firm will earn economic profits of more than $330 per day.
B. average cost of the product will be at the minimum possible level.
C. output will be 100 units per day.
D. the industry will be in long-run equilibrium.
Answer:
Given the following supply table, an increase in the price of pants from $30 to $50 per
pair will increase the:
A. supply of pants by 200 pairs.
B. quantity of pants supplied by 200 pairs.
C. supply of pants by 700 pairs.
D. quantity supplied by 500 pairs.
Answer:
Economic profit is:
A. total revenue minus explicit measurable costs.
B. explicit revenues minus explicit costs.
C. implicit and explicit revenues minus implicit and explicit costs.
D. implicit and explicit revenues minus implicit costs.
Answer:
The way an economist interprets data depends on which of the following?
A. The amount of mathematics involved in the model
B. The building blocks one has in mind
C. The ability to use the deductive method
D. The coefficient of determination
Answer:
When the FTC investigated whether firms conspired to fix prices of computer memory
called dynamic random access memory (DRAM) chips, Samsung, Micron Technology,
Hynix Semiconductor, and Infineon controlled more than 75 percent of the market for
DRAM chips. The market for these chips is most likely:
A. monopolistic.
B. perfectly competitive.
C. monopolistically competitive.
D. oligopolistic.
Answer:
A perfectly competitive firm facing a price of $10 decides to produce 100 widgets. If its
marginal cost of producing the last widget is $12 and it is seeking to maximize profit,
the firm should:
A. produce more widgets.
B. produce fewer widgets.
C. continue producing 100 widgets.
D. shut down.
Answer:
An economist observes that a pharmaceutical company is sponsoring a diabetes clinic
and providing free medications. She concludes that the pharmaceutical company is
reducing short-term profits for the possibility of higher long-term profits. This
economist is most likely a(n):
A. traditional economist.
B. behavioral economist.
C. irrational economist.
D. engineering economist.
Answer:
In considering the distribution of the gains from trade:
A. Smaller countries usually get a larger proportion of the gains from trade.
B. Larger countries usually get a larger proportion of the gains from trade.
C. The gains are generally split equally between small and large countries.
D. No statement can be made about the general nature of the split.
Answer:
Optimal rollback strategies are most difficult in:
A. sequential games.
B. simultaneous games.
C. zero sum games.
D. repeated games.
Answer:
What do markets with prices, dormitory lotteries, and first-come-first-served rules have
in common?
A. They were designed by economic engineers.
B. They are coordination mechanisms.
C. They are nudges.
D. They use price incentives.
Answer:
This table shows the marginal benefits from widgets obtained by the only three people
who value them.
Refer to the table shown. Suppose widgets cost $8.50 to produce. If widgets are a
private good, how many will be produced by market incentives, and is that the right
(efficient) number?
A. Zero will be produced, and this is below the socially optimal amount.
B. One will be produced, and this is the socially optimal amount.
C. One will be produced, and this is below the socially optimal amount.
D. Two will be produced, and this is the socially optimal amount.
Answer:
The slope of a line is zero when it is:
A. horizontal.
B. vertical.
C. an upward-sloping line that makes a 45 degree angle with the horizontal and vertical
axes.
D. a downward-sloping line that makes a 45 degree angle with the horizontal and
vertical axes.
Answer:
As network externalities broaden the use of a product, the:
A. need for a single standard becomes more important and eventually one standard wins
out.
B. need for a single standard becomes less important, so many different standards are
likely to coexist.
C. benefits of that product to everyone are diminished.
D. incentive to replace that product with something new grows stronger.
Answer:
If there were decreasing marginal opportunity costs, the production possibility curve
would be:
A. flat.
B. straight.
C. bowed out.
D. bowed in.
Answer:
The absolute value of the slope of the indifference curve given the law of diminishing
marginal rate of substitution:
A. is constant.
B. declines as one moves to the right.
C. increases as one moves to the right.
D. is different.
Answer:
In which case will the price change be the greatest (assuming the shifts described are
the same size)?
A. Demand is inelastic, and supply shifts to the left.
B. Supply is perfectly elastic, and demand shifts to the left.
C. Demand is elastic, and supply shifts to the left.
D. Supply is elastic, and demand shifts to the left.
Answer:
If the euro rises in price, it becomes:
A. cheaper for Americans to buy European products and cheaper for Europeans to buy
American products.
B. cheaper for Americans to buy European products but more expensive for Europeans
to buy American products.
C. more expensive for Americans to buy European products but cheaper for Europeans
to buy American products.
D. more expensive for Americans to buy European products and more expensive for
Europeans to buy American products.
Answer:
If a college student’s demand for magazine subscriptions is more price-elastic than a
business executive’s demand for magazine subscriptions, which of the following pricing
strategies would a price-discriminating magazine publisher follow?
A. Charge the same rate to college students and business executives
B. Set price according to the marginal cost of printing the magazines
C. Charge a higher price to college students
D. Charge a higher price to business executives
Answer:
Refer to the graph shown. If this monopolist were forced to set price equal to average
cost, it would charge a price of:
A. $2.
B. $3.
C. $8.
D. $12.00.
Answer:
The reason a profit-maximizing natural monopolist cannot set price equal to marginal
cost is that it would:
A. then be forced to produce more than it could sell.
B. then be forced to produce more than the socially optimal level of output.
C. earn excessive profits, which would attract new firms into the market.
D. suffer losses since price would be less than average cost.
Answer:
Nudges are meant to:
A. affect people’s behavior while allowing them to retain free choice.
B. limit the choices available in order to affect people’s behavior.
C. change the incentives of choices offered in order to alter behavior.
D. control people’s behavior on the basis of the goals of government.
Answer:
Demand-side discrimination occurs when:
A. employers pay women less than men for doing the same job.
B. women remain in low-paying jobs because of family responsibilities.
C. employers hire a man who is more qualified than a woman.
D. women postpone having children in order to succeed professionally.
Answer:
Refer to the graph shown. With efficient production, this firm can maximize production
at point:
A. A.
B. B.
C. C.
D. D.
Answer:
The vertical distance between the average total cost curve and the average variable cost
curve is:
A. marginal cost.
B. average fixed cost.
C. total fixed cost.
D. total cost.
Answer:
Oligopoly is characterized by:
A. no barriers to entry.
B. low market concentration.
C. inability to set price.
D. few sellers.
Answer: