When government regulations force a natural monopoly to produce where price equals
average total cost, social welfare is
a. maximized
b. less than it would be without regulation
c. greater than it would be without regulation, but it is not maximized
d. exactly the same as it would be without regulation
e. minimized
Exhibit 16-4
Refer to Exhibit 16-4. Suppose the government announced it would give monopoly
power to one firm in the industry through an exclusive license. According to the theory
of rent seeking, what is the maximum amount that might be spent on rent seeking to get
that license?
a. $500,000
b. $8
c. $250,000
d. $150,000
e. $75,000
If farmers decide individually whether or not to vaccinate their cattle against mad cow
disease, which of the following is true?
a. The equilibrium quantity is too low for efficiency.
b. The equilibrium price and quantity are too high for efficiency.
c. The equilibrium price is efficient.
d. The equilibrium quantity is too high for efficiency.
e. The equilibrium price and quantity are efficient.
Exhibit 9-21
In Exhibit 9-21, D = AR represents the market demand curve for bicycles, MRm
represents the marginal revenue curve for a monopolist producer of bicycles and Sc =
MC = AC represents the marginal cost curve for a monopolist producer of bicycles and
the market supply curve when the market is perfectly competitive. The consumer
surplus in a competitive market would be
a. $10
b. $20
c. $30
d. $40
e. $50
Other things equal, the supply of labor will be greater to a job that
a. requires advanced education and training
b. requires most working hours be on weekends
c. requires hard physical labor
d. allows the employee greater discretion in the use of time
e. has a higher probability of injury or death
Personal dating advertisements in the newspaper are popular because they
a. increase the marginal benefit of search
b. reduce the marginal cost of search
c. increase the marginal cost of search
d. reduce the optimal amount of search
e. increase quality dispersion
Exhibit 6-21
Refer to Exhibit 6-21. When this market is in equilibrium, the consumer surplus will be
area B.
a. True
b. False
Marginal external cost equals marginal private cost minus marginal social cost.
a. True
b. False
People who can earn higher market wages
a. have a greater net utility associated with nonmarket work
b. supply more hours to market work than people with lower wages
c. are less likely to perform nonmarket work
d. are more likely to view leisure as an inferior good
e. experience less disutility associated with market work
“Mere size is no offense” is an antitrust ruling based on the rule of reason.
a. True
b. False
Suppose, as a result of a long-run adjustment in a perfectly competitive industry to a
change in demand, price and output both rose. Therefore, demand must have
__________ in this __________ industry
a. fallen; increasing cost
b. fallen; decreasing cost
c. increased; increasing cost
d. increased; decreasing cost
e. decreased; constant cost
The fastest-growing component of U.S. personal consumption is services.
a. True
b. False
If an increase in the price of peanut butter causes a decline in the demand for jelly, then
a. the goods are substitutes
b. jelly is an inferior good
c. the goods are complements
d. both goods are inelastic
e. peanut butter is an inferior good
Which of the following is not a principal-agent relationship?
a. Adam and Gloria get married.
b. Payless, Getless, Inc., hires a salesperson.
c. Dixie hires a lawyer.
d. Citizens elect a state senator.
e. Opal gets her car repaired.
Which of the following statements regarding the basic economic problem of scarcity is
correct?
a. The problem only exists in countries that are not highly industrialized.
b. The problem is likely to disappear as production increases.
c. The problem is sure to disappear as technology improves.
d. The problem will exist as long as resources are available in limited amounts.
e. The problem will disappear as a person’s income falls.
A free good (price = $0) will be consumed up to the point at which its marginal utility is
zero.
a. True
b. False
Pure capitalism and a pure command system represent
a. two different ways of answering the basic economic questions
b. two names describing the same method of answering the basic economic questions
c. the only two ways of answering the basic economic questions
d. the most efficient ways to answer the basic economic questions
e. none of the above
Which of the following are implicit costs for a typical firm?
a. insurance costs
b. electricity costs
c. opportunity costs of capital owned and used by the firm
d. cost of labor hired by the firm
e. the cost of raw materials
You are hired as a production analyst at Monopoly-R-Us and you estimate that, at
current output, demand is inelastic and marginal cost is positive. You advise your
superiors that they can increase profit by
a. raising price until demand becomes unit elastic
b. raising price into the elastic range
c. lowering price until demand becomes unit elastic
d. lowering price into the elastic range
e. reduce output without changing price
The value of cross-price elasticity of demand between golf balls and golf clubs is
a. negative
b. positive
c. 0
d. greater than 1
e. less than 1
If labor is a firm’s only variable input, marginal cost ultimately depends on
a. fixed cost
b. how much profit is made
c. the price of the good produced
d. how much output each worker produces
e. fixed cost per unit
The current account records
a. last year’s flows of funds into and out of the country
b. current flows of imports and exports of goods and services, net income earned by
U.S. residents from foreign assets, and net transfer payments
c. current flows of imports and exports of goods only
d. only net income earned by U.S. residents from foreign assets
e. only current flows of imports and exports of goods and services and net transfer
payments
After reading an economics textbook about labor supply and utility maximization,
Amelia Ruiz said, “I don”t allocate my time like that.” Her professor replied,
a. “You caught us. Economists do not know what they are talking about.”
b. “This proves that you will always choose to spend your time in nonmarket work.”
c. “You act as if you allocated your time to derive the same expected net marginal utility
from the last unit of time spent in each alternative use.”
d. “Don”t you want to use your unlimited resources to satisfy your finite wants?”
e. “It is obvious that labor supply is a derived demand based on marginal revenue
product.”
Exhibit 9-17
In Exhibit 9-17, which area represents monopoly profit with perfect price
discrimination?
a. area a
b. area b
c. area a + b + e
d. area b + e
e. area b + e + c + f
If a $1 increase in price leads to a 3-unit decrease in quantity demanded, then demand
must be elastic.
a. True
b. False
As large-scale production became more profitable during the Industrial Revolution, the
easiest way to finance the required factories and heavy machinery was
a. sole proprietorships
b. limited liability partnerships
c. letting government take over
d. the corporate structure
e. family businesses
As DVDs become popular substitutes for video cassettes, demand for video cassettes is
likely to
a. become less price elastic
b. become more price elastic
c. increase
d. stay the same
e. become unit elastic
If an individual’s demand is elastic and price increases, what happens to total utility
(TU), marginal utility (MU), consumer surplus (CS), and total expenditure (TE)?
a. TU increases, MU decreases, CS decreases, and TE decreases
b. TU increases, MU increases, CS increases, and TE decreases
c. TU decreases, MU increases, CS decreases, and TE increases
d. TU decreases, MU decreases, CS decreases, and TE decreases
e. TU decreases, MU increases, CS decreases, and TE decreases
Exhibit 10-14
Which of the curves shown in Exhibit 10-14 best represents the long-run average cost
curve for an oligopolist?
a. Curve a
b. Curve b
c. Curve c
d. Curve d
e. Curve e
Specialization can sometimes create problems such as boredom and repetitive motion
injuries.
a. True
b. False