Refer to the graphs shown. If the quantity demanded by consumers is the same for
every price, then the demand curve would look like:
A. I.
B. II.
C. III.
D. IV.
Answer:
If individuals’ demand in the marketplace does not reflect their true welfare:
A. total surplus will be maximized.
B. consumer surplus will be negative.
C. the market result will still be efficient.
D. the market result will be inefficient.
Answer:
Medicaid provides:
A. financial assistance to families with children under age 19.
B. nutritional assistance, often in the form of coupons redeemable at food stores.
C. medical assistance for the poor, paid for by the individual states.
D. assistance to poor people when emergencies arise that aren’t taken care of by any of
the other programs.
Answer:
Refer to the graph shown. What price represents the shutdown price?
A. P1
B. P2
C. P3
D. P4
Answer:
The law of diminishing marginal productivity holds:
A. when all inputs are variable.
B. in the long run.
C. when all inputs are fixed.
D. in the short run.
Answer:
If fixed costs are $960, variable costs are $1,440, and output is 12, then total cost
equals:
A. $80.
B. $100.
C. $120.
D. $200.
Answer:
The distinction between supply and the quantity supplied is best made by saying that:
A. the quantity supplied is represented graphically by a curve and supply as a point on
that curve.
B. supply is represented graphically by a curve and quantity supplied as a point on that
curve.
C. the quantity supplied is in a direct relation with prices, whereas supply is in an
inverse relation.
D. the quantity supplied is in an inverse relation with prices, whereas supply is in a
direct relation.
Answer:
If a negative externality exists in the market for dirt bikes and that market is perfectly
competitive:
A. less than the efficient output of dirt bikes will be produced.
B. the price of dirt bikes exceeds the marginal social cost.
C. the price of dirt bikes equals the marginal social cost.
D. the price of dirt bikes is less than the marginal social cost.
Answer:
An industry in which 5 firms each have a 10 percent market share and 50 firms each
have a 1 percent market share will have a Herfindahl index equal to:
A. 500.
B. 550.
C. 1,100.
D. 1,500.
Answer:
The profit-maximizing condition for a perfectly competitive firm is:
A. MR = P.
B. MR = AVC.
C. P = MC.
D. P = AVC.
Answer:
Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using
250 workers and 25 machines, the firm produces 21,000 units of output. These facts are
best explained by:
A. economies of scope.
B. diseconomies of scale.
C. economies of scale.
D. diminishing marginal productivity.
Answer:
Which of the following would not move either the supply or the demand curve in the
market for housing?
A. An increase in the number of people who are retiring
B. An increase in the cost of home insurance
C. An increase in real-estate prices
D. A possibility of higher construction costs
Answer:
When workers are paid higher wages, production costs:
A. rise, supply shifts leftward, and product prices fall.
B. fall, supply shifts rightward, and product prices fall.
C. rise, supply shifts leftward, and product prices rise.
D. rise, supply shifts rightward, and product prices rise.
Answer:
All of the following can be barriers to entry except:
A. economies of scale.
B. a firm’s superior production ability.
C. price discrimination.
D. patents.
Answer:
Refer to the following graph.
Suppose this diagram represents a monopolist with a patent. What is the maximum the
monopolist would be willing to spend to defend its patent?
A. area A
B. area B
C. area A and B
D. area D
Answer:
Refer to the graph shown. Area B represents:
A. the loss of surplus by consumers resulting from a monopoly.
B. the cost to society of increasing output from Qm to Qc.
C. consumer surplus redistributed to the monopolist.
D. the loss of surplus by producers resulting from a monopoly.
Answer:
The United States provides less than 10 cents for every dollar of income as foreign aid
even though it is the richest country in the world. This is:
A. a normative statement.
B. a subjective statement.
C. an art-of-economics statement.
D. an objective statement.
Answer:
Suppose that initially, demand is given by the equation Qd = 48 – 4P. If, as a result of an
increase in income, the quantity demanded increases by 12 at every price, the new
demand equation would be:
A. Qd = 60 – 4P.
B. Qd = 36 – 4P.
C. Qd = 48 – 16P.
D. Qd = 48 – 8P.
Answer:
To maximize profits, a perfectly competitive firm should produce where marginal:
A. cost equals total revenue.
B. cost exceeds marginal revenue.
C. cost equals marginal revenue.
D. revenue exceeds marginal cost.
Answer:
Refer to the graph shown. If the firm is producing 120 units of output, profit is equal to:
A. $38.
B. -$38.
C. $0.
D. $30.
Answer:
One reason why our laws and social mores work against competition is:
A. society likes the advantages of monopolies.
B. managers are constantly wanting to operate more efficiently.
C. society does not want lower prices.
D. society has other goals besides efficiency.
Answer:
Refer to the graph shown. If the firm’s total cost is $375, capital must cost:
A. $31.25 per unit.
B. $37.50 per unit.
C. $2.50 per unit.
D. $3 per unit.
Answer:
Refer to the table shown. The average variable cost of producing 5 units of output is:
A. $2.
B. $3.
C. $4.
D. $5.
Answer:
Total profit is maximized at the output level at which the:
A. vertical distance between the total revenue curve and the total cost curve is
maximized.
B. total cost and total revenue curves intersect.
C. area between the total revenue and total cost curves is greatest.
D. vertical distance between the total revenue and total cost curves is minimized.
Answer:
Refer to the graph shown of a monopolistically competitive firm. The graph shows that:
A. the industry is in long-run equilibrium.
B. new firms will enter the industry.
C. some existing firms will leave the industry.
D. the price of the product is $90.
Answer:
Corporate advertising:
A. may reinforce consumer sovereignty.
B. may undermine consumer sovereignty.
C. cannot affect consumer sovereignty.
D. makes consumer sovereignty meaningless.
Answer:
A problem with using the judgment by performance criterion is that:
A. it is difficult to determine the relevant market.
B. it is difficult to determine the relevant industry.
C. each action of a firm must be analyzed separately and within a particular context.
D. the court must decide whether to use concentration ratios or the Herfindahl index.
Answer:
Most economies today are:
A. pure market economies.
B. differentiated primarily by the degree to which they depend on markets.
C. differentiated primarily by who owns the means of production.
D. socialist.
Answer:
Suppose that the market labor supply and labor demand equations are given by Qs =
5W and Qd = 30 – 5W. The government has passed a law that subsidizes wages by $1
per hour. The equilibrium wage and quantity of labor with the subsidy is:
A. $4 and 15 workers respectively.
B. $2.5 and 12.5 workers respectively.
C. $3.5 and 17.5 workers respectively.
D. $3.5 and 10 workers respectively.
Answer:
In 11th century Europe, the central economic decisions were made by:
A. the nation-state.
B. tradition and the lord of the manor.
C. the church.
D. central governments.
Answer: