(Table: The Cost of Producing Gadgets) Look at the table The Cost of Producing
Gadgets. According to this table, the marginal cost is:
A) increasing at a constant rate equal to $5.
B) increasing at an increasing rate.
C) increasing at a decreasing rate.
D) constant and equal to $5.
When a cherry orchard in Oregon adds a worker, the total cost of production increases
by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore,
the marginal cost of the last pound of cherries produced is:
A) $40.
B) $19.
C) $4,000.
D) $24,000.
Figure: Comparative Advantage and the Production Possibility Frontier
(Figure: Comparative Advantage and the Production Possibility Frontier) Look at the
figure Comparative Advantage and the Production Possibility Frontier. _____ has an
absolute advantage in the production of _____ and a comparative advantage in the
production of _____.
A) The United States; computers; roses
B) Colombia; computers; roses
C) The United States; computers; computers
D) Colombia; roses; computers
Figure: Joanna’s Time Allocation Budget Line
(Figure: Joanna’s Time Allocation Budget Line) Joanna’s Time Allocation Budget Line
depicts what happens when she can choose how to spend 40 hours. If Joanna’s wage
rate increases and she ends up working MORE hours:
A) leisure became relatively more expensive.
B) leisure became relatively less expensive.
C) leisure did not change in price.
D) she does not know how to allocate her time effectively.
Suppose the cross-price elasticity between demand for Burger King burgers and the
price of McDonald’s burgers is 0.8. If McDonald’s increases the price of its burgers by
10%:
A) Burger King will sell 10% more burgers.
B) Burger King will sell 8% more burgers.
C) Burger King will sell 8% fewer burgers.
D) We cannot tell what will happen to Burger King, but McDonald’s will sell 8% fewer
burgers.
The circular-flow diagram illustrates how households _____ goods and services and
_____ factors of production.
A) buy; sell
B) buy; buy
C) own; buy
D) own; sell
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope
of increasing revenue on the assumption that consumer demand is:
A) more price-elastic as departure time approaches.
B) less price-elastic as departure time approaches.
C) always unit elastic.
D) very sensitive to price changes as the time of departure approaches.
One point on an indifference curve that displays a diminishing marginal rate of
substitution between apples and oranges is 10 apples and 2 oranges; another is 8 apples
and 4 oranges. Which of the following combinations of apples and oranges could also
lie on this indifference curve?
A) 10 apples and 6 oranges
B) 6 apples and 7 oranges
C) 9 apples and 4 oranges
D) 8 apples and 3 oranges
Figure: Pricing Strategy in Cable TV Market I
(Figure: Pricing Strategy in Cable TV Market I) In the figure Pricing Strategy in Cable
TV Market I, the dominant strategy for CableSouth:
A) is to advertise.
B) is not to advertise.
C) is to do whatever CableNorth does.
D) does not exist.
Javon has 80 hours per week to allocate between labor and leisure. Javon’s wage is $8
per hour. Graph hours of leisure per week on the horizontal axis and income per week
on the vertical axis. According to the optimal time allocation rule, Javon should allocate
his time such that the marginal utility of an additional hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.
If demand _____ and the University of Michigan increases the price of football tickets,
revenues will increase.
A) is price-inelastic
B) is price-elastic
C) has price elasticity equal to 1
D) is perfectly price-elastic
(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special
birthday cakes. She is trying to decide how many mixers to purchase. Her estimated
fixed and average variable costs if she purchases one, two, or three mixers are shown in
the table. Assume that average variable costs do not vary with the quantity of output.
How many mixers should Pat buy to get the lowest average total cost if she plans to
make 200 cakes?
A) one
B) two
C) three
D) Can’t be determined without more information
If a firm operating in monopolistic competition is producing a quantity that generates
MC < MR, then the marginal decision rule tells us that profit:
A) can be increased by increasing production.
B) can be increased by decreasing production.
C) can be increased by increasing the price.
D) is maximized only if MC = P.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $20, how many tubs of ice cream will Sergei produce in
the short run?
A) 0
B) 1
C) 2
D) 3
Figure: Shifts in Demand and Supply
(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose scientists discover that eating a tomato a day prevents aging. Which panel
BEST describes how this will affect the market for tomatoes?
A) panel A
B) panel B
C) panel C
D) panel D
It is certain that the equilibrium quantity will fall when:
A) the supply curve and the demand curve both shift to the right.
B) the supply curve shifts to the right and the demand curve shifts to the left.
C) the supply curve shifts to the left and demand shifts to the right.
D) supply shifts to the left and demand stays the same.
There is NO total revenue test for price elasticity of supply because:
A) price and quantity supplied are usually inversely related.
B) price and quantity supplied are usually positively related.
C) total revenue will not usually change in the direction of a supply price change.
D) price and quantity supplied are always negatively related.
Because business travelers’ demand for airline flights is relatively _____, small
increases in price will result in relatively _____ decreases in additional business
travelers.
A) price-inelastic; small
B) price-elastic; large
C) price-inelastic; large
D) price-elastic; small
Figure: The Socially Optimal Quantity of Pollution
(Figure: The Socially Optimal Quantity of Pollution) In the figure The Socially Optimal
Quantity of Pollution, the optimal level of pollution is:
A) zero, since no pollution is best for society.
B) where the marginal social benefit curve intersects the quantity axis.
C) where the marginal social cost curve intersects the quantity axis.
D) where the marginal social benefit curve intersects the marginal social cost curve.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. Based on this information, _____ has the comparative
advantage in making brownies and _____ has the comparative advantage in making
cookies.
A) Mark; Julie
B) Mark; Mark
C) Julie; Mark
D) Julie; Julie
Clean water in a river is nonexcludable because:
A) it is not possible to prevent consumption by people who do not pay for it.
B) more than one person can consume the same unit of the good at the same time.
C) individuals ignore the effect their use has on the amount of the resource remaining
for others.
D) consumption is inefficiently low.
Figure: The Production Possibilities for Two Countries
(Figure: The Production Possibilities for Two Countries) Look at the figure The
Production Possibilities for Two Countries. Both nations will gain from trade when 1
tire trades for:
A) 0.33 radio.
B) 0.5 radio.
C) 1.5 radios.
D) 2 radios.
Figure: A Market with a Tax
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The transfer of
consumer surplus to the government is equal to the area:
A) B.
B) C.
C) D.
D) F.
The two most important sources of federal revenue are the _____ taxes.
A) FICA and personal income
B) corporate income and FICA
C) excise and personal income
D) Social Security and excise
Consumer surplus can be found by computing the area _____ the _____ curve and
_____ the price.
A) above; supply ; below
B) below; supply; above
C) below; demand; above
D) below; demand; below
As you move down a linear demand curve, the price elasticity of demand will:
A) increase.
B) decrease.
C) increase and then decrease.
D) decrease and then increase.
The likely result of a price floor is a _____ of the good at a price _____ the equilibrium
price.
A) surplus; above
B) shortage; below
C) surplus; below
D) shortage; above
Figure: The Demand for Shirts
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment BC is:
A) less than the price elasticity of demand for the segment AB.
B) zero.
C) greater than 3.5.
D) less than the price elasticity of demand for the segment CD.