An empirical study determines that price exceeds marginal cost at the levels of output
of firms in long-run equilibrium in the widget industry. The widget industry may
therefore
a. be monopolistically competitive.
b. have firms whose goal is sales maximization.
c. have firms that act as price leaders.
d. All of the above are correct.
The process of focusing on only the most important factors to explain a phenomenon is
called
a. abstraction.
b. marginal analysis.
c. rational choice.
d. controlled experimentation.
e. the trade-off between efficiency and equality.
By definition, a firm that practices satisficing
a. maximizes its sales, not its profits.
b. makes acceptable decisions, though not necessarily optimal ones.
c. satisfies government guidelines instead of consumer demands.
d. minimizes the cost of gathering enough information to make an optimal decision.
A tax that creates an excess burden may nevertheless improve efficiency if
a. consumption of the good has been generating beneficial externalities.
b. consumption of the good has been generating no externalities.
c. consumption of the good has been generating detrimental externalities.
d. the good has been supplied by a monopolist.
Table 22-3
The data in Table 22-3 indicate that the United States has
a. an absolute advantage in both goods, and a comparative advantage in cotton.
b. an absolute advantage in both goods, and a comparative advantage in wheat.
c. only a comparative advantage in wheat.
d. only a comparative advantage in cotton.
The short run is the time period during which
a. all of the firm’s costs are fixed.
b. the value of the firm’s assets starts to decay.
c. the firm can adjust all inputs freely.
d. some of the firm’s input decisions are constrained by previous commitments.
Pollution problems
a. have existed for many centuries.
b. are attributable to modern industrialization.
c. can be blamed on the profit system.
d. have worsened in every respect in the past forty years.
The firm described in Table 8-1 has a fixed cost of ____ at its optimal level of output.
a. 2
b. 6
c. 10
d. 26
Unregulated markets will tend to
a. rapidly deplete any natural resource.
b. naturally conserve any depletable natural resource by pushing up its price every year
by a constant dollar amount.
c. naturally conserve a depletable resource by pushing up its price at a constant rate
every year.
d. deplete a resource unless new supplies are found.
At the beginning of the 20th century, average U.S. income was less than $6,000; as of
2013, the average income was nearly $53,000.
a. True
b. False
When people suddenly want to buy something, supply increases.
a. True
b. False
A perfectly competitive firm and a monopolistically competitive firm are similar in
each of the following respects except
a. each has many buyers and sellers.
b. firms sell homogeneous products in both markets.
c. in having perfect information.
d. for freedom of exit and entry.
It is not optimal to have equal incomes.
a. True
b. False
Figure 15-1
Figure 15-1 describes conditions in the monopolized weezil industry. In the absence of
government intervention, the monopolist will produce an output equal to
a. W.
b. X.
c. Y.
d. Z.
Specialization and division of labor are made easier by the existence of money.
a. True
b. False
The different points on a cost curve represent alternative production possibilities in the
same time period.
a. True
b. False
A failure of the pricing system has led to pollution.
a. True
b. False
The Trade Adjustment Assistance program is intended to help
a. businesses that seek to expand exports into protected foreign markets.
b. local governments that are harmed when businesses fail as imports increase.
c. protected industries obtain improved technology in order to increase productivity.
d. workers and businesses that lose markets because of increases in imports.
In the United States the distribution of income is relatively unequal, and output is
relatively high, while in the former Soviet Union the distribution of income was more
equal and output per worker was much lower. Give one possible explanation for this
phenomenon.
Graph typical total, average, and marginal cost curves and explain how their shapes are
influenced by the law of diminishing returns. Graph TC on a separate graph, AC and
MC on a second graph.
How does the United States differ from the European Union in how it balances the
competing claims of equality and efficiency?
Explain why Adam Smith believed that competitive markets are a key component of
achieving the gains from the invisible hand.
A large airline calculates that the additional cost of a having a passenger on a flight to
the Bahamas as the cost of a bag of peanuts and a soft drink, which totals $1.50, but the
airline’s price is $600 for potential customers who want to buy vacant seats on the day
of the flight. Which economic principle is this airline failing to utilize?
Suppose the South had won the Civil War, and trade no longer took place between
Northern and Southern states. Explain whether the sum of the North and South GDPs
would have been higher or lower than with the current United States.
Assume Jean-Claude purchased real estate for $500,000 using $50,000 of which is his
own money and $450,000 which he borrowed at an 8% interest rate. If the value
increased by 10% in one year and he sold the property, what was Joe’s rate of return on
his investment? If the value of the property had declined by 2%, what would have been
the rate of return on his investment?
Explain the distinction between investment and capital.
Alice has $10 to spend on wine and cheese. If wine is $2,50 a glass and cheese $2, draw
the corresponding budget line. Then draw three indifference curves, one showing the
amount of wine and cheese Alice would choose, one showing less preferred
combinations of wine and cheese, and the last showing preferred but unaffordable
combinations.
Explain why on average the profit levels for invention and entrepreneurship are
generally so low.