If good “A” is represented on the horizontal axis and good “B” on the vertical axis, then
the steeper the production possibilities frontier at a given level of production of good
“A,” the
a. larger the opportunity cost of producing an extra unit of good “A.”
b. larger the quantity of resources being devoted to the production of good “B.”
c. smaller the quantity of resources being devoted to the production of good “A.”
d. smaller the opportunity cost of producing an extra unit of good “A.”
e. greater the returns to scale in the production of good “A.”
Externalities can cause the market mechanism to
a. malfunction.
b. improve.
c. operate efficiently.
d. move up toward the production possibility curve.
A monopolist will operate where
a. MR = MC and charge a price equal to marginal revenue.
b. MR = MC and charge a price equal to marginal cost.
c. MR = MC and charge a price corresponding to demand at that level.
d. MC = MR and charge a price corresponding to average cost.
Many industries are regulated in the United States, from railroads and electric utilities
to cable TV.
a. True
b. False
You have just bought a used car, and drive away satisfied that you’ve made a good deal
on the purchase. What would an economist say about your “gain” on the deal?
a. Your gain has clearly meant that the seller lost on the deal.
b. The seller has clearly gained, and you have actually lost on the deal.
c. Both you and the seller have gained something.
d. If your gain is too large, then the deal should be re-negotiated.
e. If the seller’s loss is too large, then the deal should be re-negotiated.
Sales maximization and profit maximization are essentially equivalent.
a. True
b. False
Under a system of financial penalties for polluters:
a. Firms could pollute all they wanted to.
b. Firms would have to pay a tax for each unit of pollution created.
c. Firms would be encouraged to pollute less.
d. All of the above are correct.
Outputs include goods but not services.
a. True
b. False
The labor supply curve starts to bend backward at the point where
a. the total utility of leisure exceeds the total disutility of labor.
b. the marginal utility of additional income becomes zero.
c. the income effect comes to dominate the substitution effect.
d. the substitution effect comes to dominate the income effect.
Per capita GDP can be defined as
a. GDP per working person.
b. GDP per unit of capital.
c. GDP per person.
d. GDP per unit of unemployment.
The sales tax is generally considered to be a regressive tax.
a. True
b. False
In a classic administrative snafu, the Army assigns trained classical musicians to
kitchen duty and places trained cooks in the military band. This is an example of
inefficiency in
a. output selection.
b. production planning.
c. product distribution.
d. market segmentation.
Scarcity of resources implies that people must make decisions consistent with the
means they have available to them.
a. True
b. False
Figure 4-4
In Figure 4-4, an increase in population will change demand from
a. D1 to D2.
b. D2 to D1.
c. D3 to D2.
d. D3 to D1.
Homeowners receive tax benefits that are not available to renters.
a. True
b. False
Economies of scale tend to create natural monopolies.
a. True
b. False
The poor are those who fall too far behind the average income. This refers to the ____
definition of poverty.
a. marginal
b. absolute
c. relative
d. threshold
If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent
increase in quantity demanded.
a. True
b. False
If a tax is progressive, the average tax rate
a. remains the same as income rises.
b. rises as income rises.
c. falls as income rises.
d. falls with passage of time.
Buyers’ expenditures and sellers’ revenues are always identical.
a. True
b. False
Where should a producer stop devoting more of his spending on labor if initially the
MRP of the additional dollar spent on labor is higher than the MRP of the additional
unit spent on tools?
a. MRP/$ of additional labor falls below MRP/$ of additional tools.
b. MRP/$ of additional capital increases above MRP/$ of additional tools.
c. MRP/$ of additional labor becomes equal to MRP/$ of additional tools.
d. MRP/$ of the additional labor falls to zero.
Regulation of industry is usually carried out by special government agencies that
administer and interpret the law.
a. True
b. False
The behavior of the perfectly competitive firm:
a. theoretically leads to an inefficient allocation of resources.
b. maximizes the benefits to consumers, given the resources available to the economy.
c. reduces output in order to raise prices in the short-term.
d. results in excess capacity and inefficiency.