Entry leads reduces firm profits because it leads to a lower price.
The earned income tax credit has been a successful anti-poverty policy by encouraging
participation in the workforce.
The firm faces the market demand curve in a monopolistic competition industry.
Macroeconomics involves the study of the decision-making of individuals or individual
firms.
In an efficient market where buyers and sellers act in their own self-interest, Adam
Smith’s invisible hand is in action
A decrease in demand will cause the equilibrium price and quantity of a good to fall,
ceteris paribus.
Under monopolistic competition, the typical firm maximizes profit at the point where
marginal revenue equals marginal cost.
Pollution imposes costs on people and firms other than those involved in producing or
consuming the product that produces pollution.
Fireworks on the night on July 4th are neither rival nor excludable.
Because the marginal revenue curve for a monopolist lies below its demand curve, the
profit-maximizing price of the monopolist will be above marginal cost.
The marginal social benefit of an activity equals its marginal private benefit plus its
marginal external benefit.
A cost that has already been paid but can be recovered is a sunk cost.
The Robinson-Patman Act prohibits the selling of products at “unreasonably low
prices” with the intention of increasing competition.
If we eliminated our textile tariffs, the dislocated workers could easily switch to other
jobs.
A comparative advantage is the ability of one person or nation to produce a good at an
opportunity cost that is lower than that of another person or nation.
Airline pilots make more than bus drivers in part because the training costs of being an
airline pilot are higher.
Microeconomics is the study of aggregate behavior in the economy.
Sunk costs are important to consider when determining to shut down or to operate a
business.
Suppose that in a small town 40 used cars are sold each month. Of the 40 cars sold, 30
are lemons and 10 are plums. If consumers expect 50% of the used cars sold to be
lemons, we can expect the price that buyers are willing to pay to fall over time.
The licensing of taxis through the use of medallions decreases the price of taxi service.
An increasing cost industry is one where total costs rise as the industry grows.
Firms that expend resources for lobbying that could have been used for productive
services are engaging in rent-seeking behavior.
Self-interest theory of government allows politicians to get re-elected and make a career
of politics.
All consumers are worse off when firms engage in price discrimination.
The demand for a product of a monopolistically competitive firm is very price inelastic.
A market in which there are neither external benefits nor external costs is inefficient.
Markets exist to facilitate exchange between people.
Recall the Application about the incentives to buy hybrid vehicles to answer the
following question(s).
According to the Application, giving subsidies for the purchase of hybrid vehicles was
the most efficient way for the government to reduce CO2 emissions.
Price fixing is illegal under the Sherman Act and subsequent legislation.
If the minimum price of plums (high-quality) decreases, the market will become
thinner.
What matters to people is the real value of money or income.
Monopolists earn excessive profits by increasing their quantity produced above the
competitive market outcome.
The Federal Trade Commission blocked the merger between Office Depot and Staples
because there was evidence that the merger would increase competition in the office
supplies industry.
If Tom drives a car more recklessly after he purchases a comprehensive plan, the
change in his behavior is an adverse selection problem.
The opportunity cost of a table is 5 chairs in nation A and 1 chair in nation B. If the
nations specialize and trade, an acceptable terms of trade for both nations would be 3
chairs per table.
All goods that have social value will be profitable for firms in the private sector to
produce.
If there is an increase in demand in the long run for an increasing cost industry, the
market price will fall.
Suppose that a donut bakery has $1,500 of variable costs and $2,500 of fixed costs
when it produces 1000 donuts and sells them for $1 per donut. Average total cost is
equal to:
A) $4.
B) $25.
C) $2.
D) $1.5.
Why are humans subject to present bias?
A) They overestimate their future consequences.
B) They ignore the gut feeling.
C) They underestimate their future consequences.
D) They do a good job imagining the strength of future gut feeling.
Figure 4.6 illustrates a set of supply and demand curves for a product. Suppose that the
market is currently in point A. If the price of the input of the product decreases, the
market will move to point:
Figure 4.6
A) A.
B) B.
C) C.
D) D.
Which of the following companies was NOT broken up by the government?
A) Standard Oil
B) AT&T
C) American Tobacco
D) Office Depot
Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are
being interrogated individually and need to decide if they should confess or not confess.
The police have enough information to put them in jail for 5 years. They also know the
pair have committed a more egregious crime but without the help of one of the suspects
they will not be able to convict them on this charge. The first number in each cell refers
to the number of years of prison time Jeri will receive if she takes that action and the
second number in each cell refers to the number of years of prison time Tom will
receive if he takes that action. If Jeri and Tom can decide jointly then the best strategy is
for Jeri to ________ and Tom to ________.
Table 12.2
A) confess; confess
B) not confess; not confess
C) not confess; confess
D) confess; not confess
Refer to Figure 6.3. On this graph, area BCEO represents:
A) producer surplus.
B) total surplus.
C) consumer expenditures.
D) firm profits.
The main purpose of hiring the celebrity endorser is to:
A) make the customers try the product for the first time.
B) make the customers buy the product repeatedly.
C) convince the customers that using the product will turn them into celebrities as well.
D) pay for the endorser’s retirement expenses.
If the price of crude oil (an input to the production of gasoline) increases, then we will
expect to see:
A) a movement along the supply curve for gasoline upwards.
B) a movement along the supply curve for gasoline downwards.
C) a shift in the supply of gasoline to the left.
D) a shift in the supply of gasoline to the right.
Refer to Figure 6.3. On this graph, area BCD is:
A) producer surplus.
B) total surplus.
C) consumer net benefit.
D) consumer surplus.
If you remove resources from factory production, the quantity of factory goods will:
A) increase.
B) decrease.
C) remain the same but their price will decrease.
D) be diverted to other production.
Cognitively active consumers tend to exercise ________ self control and have relatively
________ dorsal-lateral prefrontal cortexes.
A) more; active
B) more; inactive
C) less; active
D) less; inactive
Recall the application about wireless women in Pakistan, why is the market for phones
services perfectly competitive?
A) Thousands of Pakistan entrepreneur women sell phone services to the neighbors that
each takes the market price as given.
B) The market of phone services has barrier to entry and many women in Pakistan have
trouble getting services due to the shortage in supply.
C) The initial investment would be millions for entering the phone business in the
Pakistan, and will keep the numbers of suppliers low.
D) none of the above
Which of the following is partially responsible for the male-female wage gap in the
United States?
A) Women have, on average, less education than their male counterparts.
B) Women have, on average, less work experience than their male counterparts.
C) Women have been denied access to many occupations, leading to increased supply in
a few occupations.
D) All of the above are correct.
Refer to Figure 18.1. ________ has a comparative disadvantage in bicycles and
________ has a comparative disadvantage in hang gliders.
Figure 18.1
A) The United States; the United States
B) The United States; Canada
C) Canada; the United States
D) Canada; Canada
If the price elasticity of demand is 1.3, demand is:
A) upward sloping.
B) inelastic.
C) unitary elastic.
D) elastic.
If the marginal utility per dollar is not the same for each good, the consumer could
________ her utility by spending ________ on goods for which the marginal utility per
dollar is higher.
A) increase; more
B) increase; less
C) decrease; more
D) minimize; more
A regulatory policy under which the government picks the point on the demand curve at
which price equals average cost is known as:
A) average-cost pricing.
B) marginal-cost pricing.
C) average-revenue pricing.
D) competitive pricing.
In the application, when the government lowered the price of cigarettes by lowering the
tax rates, the response of the consumer was:
A) an increase in quantity demanded.
B) an increase in demand.
C) a decrease in demand.
D) a decrease in quantity demanded.
Table 15.1 shows the preferred budget in millions for a new sports facility and the
number of thousands of voters in a community who prefer that budget. Tom proposed a
budget of $5 million while Mary proposed a budget of $4 million. This suggests that
Tom will get ________ thousand votes while Mary gets ________ thousand votes.
Table 15.1
A) 32; 11
B) 22; 21
C) 15; 28
D) 12; 31
Recall the Application about the increase in Chinese demand for pecans to answer
the following question(s). Between 2006 and 2009, Chinese imports of U.S. pecans
increased from 9 million pounds per year to 88 million pounds per year, and as a
result of the increase in demand, the equilibrium price increased by about 50
percent. The increase in demand was caused in part by widespread reports in the
Chinese media extolling the health benefits of pecans.
According to this Application, between 2006 and 2009, Chinese demand for pecans
increased by roughly ________ percent.
A) 79
B) 90
C) 456
D) 877
Figure 9.5 shows the short-run and long-run effects of an increase in demand of an
industry. The market is in equilibrium at point A, where 100 identical firms produce 6
units of a product per hour. Suppose that the market demand curve shifts to the right.
Why is the short-run supply curve steeper than the long-run supply curve?
Figure 9.5
A) because production facilities are fixed in the short run
B) because each firm experiences diminishing returns in the short run
C) because production becomes costlier as firms squeeze more output from the existing
production facilities
D) all of the above
The case of Airbus, an airplane manufacturing consortium in Europe, which receives
large subsidies from several European countries, best exemplifies which rationale for
protectionist policies?
A) shielding workers from foreign competition
B) protecting infant industries
C) prevention of dumping in local markets
D) helping domestic firms establish monopolies in world markets
Refer to Figure 6.6, which shows a market for taxi medallions. Without any limit to the
number of medallions (taxi licenses), the consumer surplus from consuming taxicab
services is represented by:
A) area ABF.
B) area ACI.
C) area DEH.
D) area CEI.
If two firms use a tit-for-tat scheme to maintain cartel pricing and one firm chooses a
high price in the current time period then:
A) that firm will also choose a low price in the next time period.
B) that firm will also choose a high price in the next time period.
C) the other firm will choose a low price in the next time period.
D) the other firm will choose a high price in the next time period.
Low-price guarantees in a duopoly:
A) lead to higher prices.
B) lead to lower prices.
C) make cartel pricing possible.
D) A and C are correct.
Fertilizer and Corn Yield
After applying the second bag of fertilizer, the farmer experienced:
A) increasing returns.
B) diminishing returns.
C) constant returns.
D) negative returns.
Most often, a natural monopoly will:
A) charge the profit maximizing price.
B) charge a price equal to average variable cost.
C) be subject to a maximum price set by the government.
D) all of the above
If the wage rate is below the equilibrium, then:
A) the supply of labor will decrease to adjust to the lower wage.
B) the wage will be bid up by employers.
C) many workers will be unemployed.
D) both A and C
Markets which have external costs will produce ________ output than the socially
efficient level whereas markets which have external benefits will produce ________
output than the socially efficient level.
A) less; less
B) more; more
C) more; less
D) less; more
If the supply curve is relatively flat, then the price elasticity of supply will be:
A) relatively large.
B) relatively low.
C) negative.
D) decreasing at an increasing rate.
The economic view of traffic congestion considers:
A) that drivers ignore the costs they impose on other drivers by slowing other drivers’
commute time.
B) that driving is a right.
C) that most drivers are not good defensive drivers.
D) that the amount of driving should be reduced.
Recall the application regarding how changing beer taxes affected highway deaths.
What has happened to the beer tax since 1951?
A) It has increased.
B) It has decreased.
C) It has stayed the same.
D) The topic was not mentioned.
Why is it important that a firm have market power if it wishes to engage in price
discrimination?
Explain the new guidelines used by the Department of Justice and the Federal Trade
Commission for evaluating proposed mergers.
Ward is thinking about buying fire insurance for his store. Explain how asymmetric
information occurs when the policy is issued. Explain how moral hazard might occur
after the policy is issued.
Is it possible for nominal wages to decrease while real wages increase?
What is the law of diminishing marginal utility?
Would you expect the cross elasticity of demand between ham and turkey to be positive
or negative? Why?
What is a voluntary export restraint?
What is an economic view of traffic congestion?
Is it possible for a firm to maximize profit and yet incur a loss? Explain.
It has been said that if buyers of used goods are pessimistic it becomes a self-fulfilling
prophecy. In other words, buyer pessimism causes the market to have more low-quality
goods. Explain why this is true.
Explain intuitively why the market for a nonexcludable good fails to provide efficient
quantity.
What are the three reasons Adam Smith said led to increase productivity with
specialization and division of labor?
Why do the demand curves for inferior goods slope downward, even though the law of
demand is driven in part by the income effect?
Dogger’s Snowboard Shop hires workers for the holidays. Marginal product of the last
worker hired is three. Marginal revenue product of the last worker is $450. Assuming
one price, what is the price of Dogger’s snowboards?
Suppose that a paper producer dumps its waste into a local river. Explain why this
situation is inefficient.
What happens in the short run and long run in a constant cost industry like bags of ice
after a natural disaster like a hurricane?