A U.S. company is attempting to cut costs by shifting some of its services to Thailand.
This process of shifting production of products or services overseas to cut costs often
results in:
A) greater potential for market failure for those products and services.
B) greater economic uncertainty in the market for those products and services.
C) lower consumer prices on those products or services.
D) lower production quantities of those products or services.
Consider the game tree in Figure 12.8. If both stores’ payoffs in the bottom rectangle
were $600 instead of $300, the outcome of the game will be that:
A) both stores choose to advertise.
B) both stores choose not to advertise.
C) Store A chooses to advertise but Store B chooses not to advertise.
D) Store B chooses to advertise but Store A chooses not to advertise.
As compared to a pollution tax, a command-and-control policy will increase production
costs by a ________ amount and increase equilibrium price by a ________ amount.
A) larger; larger
B) larger; smaller
C) smaller; larger
D) smaller; smaller
An import is a product:
A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.
Figure 9.5 shows the short-run and long-run effects of an increase in demand of an
industry. The market is in equilibrium at point A, where 100 identical firms produce 6
units of a product per hour. If the market demand curve shifts to the right, which of the
following statements is true in the long run?
Figure 9.5
A) The market price drops below $12 as more firms enter the market build more plants.
B) Both existing firms and new firms earn a zero economic profit.
C) All firms in the industry maximize their profits by producing the output where the
marginal cost equals $10.
D) all of the above
You borrow money to buy a house in 2006 at a fixed interest rate of 6.5%. By 2009, the
inflation rate has risen to 8.5%. Considering only your mortgage, is inflation good news
or bad news for you?
A) bad news, because inflation hurts everyone
B) bad news, because it makes the real value of your mortgage payments increase
C) good news, because it makes the real value of your mortgage payments decrease
D) bad news, because it makes the nominal value of your mortgage payments increase
The total revenue of Grandma’s Fudge Factory is equal to:
A) average cost times quantity sold.
B) elasticity of demand divided by percentage change in quantity.
C) price of fudge times quantity sold.
D) income minus explicit and implicit costs.
When do we expect special-interest groups to form?
A) when the benefits are spread out over many and the costs are concentrated on a few
citizens
B) when the costs of a project are spread out among all taxpayers while the benefits are
concentrated among smaller segments of the population
C) when there is a great possibility that a vast number of citizens will become
free-riders
D) when the choices made by the government match the preferences of the median
voter
Suppose there are only 2 nations, Atlantis and Pacifica, and only two goods, surfboards
and kayaks. If Atlantis produces only surfboards, it can make 27 per day. If Atlantis
produces only kayaks, it can make 18 per day. If Pacifica produces only surfboards, it
can make 32 per day. If Pacifica produces only kayaks, it can make 24 per day. After
trade begins, ________ will specialize in the production of surfboards and ________
will specialize in the production of kayaks.
A) Atlantis; Atlantis
B) Pacifica; Atlantis
C) Atlantis; Pacifica
D) No trade will occur.
Which of the following is NOT a market?
A) an online electronic auction
B) a group of paving contractors bidding for a road construction contract
C) ticket scalpers selling tickets outside a sold-out sports event
D) All of the above are markets.
Firms who are attempting to engage in price discrimination will offer customers with a
________ demand a higher price and customers with a(n) ________ demand a lower
price.
A) lower; higher
B) normal; inferior
C) less elastic; more elastic
D) more elastic; less elastic
Refer to Figure 6.4. Suppose that the current price is set at C and units of a good are
traded. Which of the following statements is INCORRECT?
A) The quantity supplied is smaller than the quantity demanded.
B) A buyer’s willingness to pay is greater than a seller’s willingness to accept.
C) The producer surplus would increase should the price rise.
D) Total surplus would increase should the price fall.
Consider Figure 12.5. If neither player confesses, then:
A) both players spend 4 years in jail.
B) both players spend 1 year in jail.
C) player A spends 0 years in jail, and player B spends 8 years in jail.
D) player A spends 8 years in jail, and player B spends 0 years in jail.
Which of the following situations will arise in the domestic market following the
imposition of an import quota?
A) imports increase, domestic production decreases, prices decrease
B) imports decrease, domestic production increases, prices decrease
C) imports decrease, domestic production decreases, prices increase
D) imports decrease, domestic production increases, prices increase
Recall the Application about the shutdown price for zinc to answer the following
question(s).
Recall the Application. If the cost of mining zinc varies from one mine to another, the
shutdown price for mining zinc:
A) can also vary for each mine.
B) must remain uniform for all zinc mines.
C) will only vary in the long run.
D) cannot exist without uniform costs.
If a firm that makes $5 profit per box of cigars pays Rush Limbaugh $1,000,000 to
endorse their cigars, then to make the endorsement pay off they must sell at least:
A) $2,000,000 more in cigars.
B) $20,000 more in cigars.
C) 20,000 more boxes of cigars.
D) 200,000 more boxes of cigars.
Figure 4.4 illustrates the demand for guitars. An increase in price of guitars would bring
about a movement from:
Figure 4.4
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
One can tell that Figure 8.4 shows short run costs because:
A) the slope of total costs and variable costs are the same.
B) costs are rising.
C) total costs are positive when output is zero implying fixed costs.
D) all of the above.
Recall the Application about the government of Mexico City repainting highway
lane lines to transform a 4-lane highway into a 6-lane highway to answer the
following question(s).
If you use the midpoint method to describe the change in the number of lanes from 1 to
2, then the percent change you would calculate is:
A) 66 percent.
B) 50 percent.
C) 100 percent.
D) 33 percent.
When a monopolist sells two units of output its total revenues are $100. When the
monopolist sells three units of output its total revenues are $120. When the monopolist
sells three units of output, the price per unit is:
A) $6.67.
B) $20.
C) $33.33.
D) $40.
Scarcity can best be defined as a situation in which:
A) there are no buyers willing to purchase what sellers have produced.
B) there are not enough goods to satisfy all of the buyers demands.
C) resources are limited in quantity and can be used in different ways.
D) there is more than enough money to satisfy consumers wants.
Figure 11.2 shows demand and costs for a monopolistically competitive firm. At the
profit maximizing output level:
Figure 11.2
A) the firm is earning a positive economic profit and more firms are expected to enter
the market.
B) the firm is earning a zero economic profit and no firms are expected to enter the
market.
C) the firm is earning a negative economic profit and more firms are expected to leave
the market.
D) There is not sufficient information.
Assume that as a firm decreases its price its total revenue decreases. Which of the
following is a possible value of its price elasticity of demand?
A) 0.4
B) 1
C) 1.4
D) 4
Consider a labor market in equilibrium. If both demand curve and supply curve of labor
shift to the right, then the wage rate in the market will ________.
A) increase
B) decrease
C) remain unchanged
D) either increase or decrease or remain unchanged
Tariffs ________ prices for domestic consumers and import quotas ________ prices for
domestic consumers.
A) raise; lower
B) lower; raise
C) raise; also raise
D) lower; also lower
An example of a good that is nonexcludable is:
A) an art exhibition with admission fee.
B) a piece of Velcro.
C) space exploration.
D) a bottle of Tang.
In Figure 5.2 at quantities at Q1:
A) price and total revenue are unrelated.
B) total revenue is maximized.
C) price elasticity equals 1.
D) all of the above
A firm that generates pollution is illustrated in Figure 16.1. If the government imposes a
pollution tax equal to P3 the firm’s abatement choice will be:
Figure 16.1
A) A1.
B) A2.
C) A3.
D) less than A1.
Suppose that consumption of oat bran is found to reduce cholesterol and improve
health. The result is that:
A) the demand for oat bran decreases.
B) the demand for oat bran increases.
C) the supply of oat bran increases.
D) Both A and C are correct.
Figure 6.5 illustrates the market for sugar. If sugar imports were banned:
A) domestic producers gain at the expense of domestic consumers.
B) domestic consumers gain at the expense of domestic producers.
C) domestic consumers gain at the expense of foreign producers.
D) foreign producers gain at the expense of domestic consumers and producers.
When at least one factor of production is fixed, firms require more and more workers to
produce each additional unit of output. This describes:
A) increasing marginal returns.
B) diminishing marginal returns.
C) learning by doing.
D) short-run adjustments.
The marginal product of labor is the:
A) change in labor necessary to produce an additional unit of output.
B) cost of additional labor necessary to produce an additional unit of output.
C) change in output resulting from adding an additional unit of labor.
D) change in revenue resulting from adding an additional unit of labor.
Empirical studies suggest that when a large number of firms are present in a market,
prices are usually ________ and profits are usually ________ than when there are only
a few firms in a market.
A) lower; higher
B) lower; lower
C) higher; higher
D) higher; lower