As former competitors in many industries link up to challenge others on a worldwide
basis, ________ occurs.
A) segregation
B) denationalization
C) consolidation
D) technological stagnation
The town of Saddle Peak has a fixed supply of mountain view lots. In this case, the
price per square foot of mountain view lots is
A) determined only by supply.
B) determined only by demand.
C) set by government officials of Saddle Peak.
D) negotiated by environmental groups and property developers.
The Congressional Budget Office estimates that most of the increase in federal
spending on Medicare and Medicaid will be due to
A) the aging population.
B) increases in the cost of providing health care.
C) increases in immigration.
D) declining income levels.
Table 14-7
The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist
must decide whether to offer same-day delivery for their products. The matrix shows
how much profit each firm will earn if it does or does not offer same-day delivery. The
amount of profit for one firm depends on whether the other firm offers same-day
delivery.
Refer to Table 14-7. Which of the following statements is true?
A) Given that Florabunda offers same-day delivery, Perfect’s best strategy is to not offer
same-day delivery.
B) Given that Perfect offers same-day delivery, Florabunda’s best strategy is to offer
same-day delivery.
C) Perfect and Florabunda will agree to collude in order to maximize their profits.
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will
decrease their costs and allow each firm to earn more than $1,800 million in profits.
In the United States in 2012, about two-thirds of those who were not covered by health
insurance
A) are single and unemployed.
B) live in families in which at least one member has a job.
C) live in families in which all members are unemployed.
D) are retired from the workforce.
Figure 14-3
Rainbow Writer (RW) is a small online company selling a highly rated software
package for printing color labels directly onto CDs. The firm currently earns a profit of
$2 million per year selling its package exclusively on its Web site. Odeon, the producer
of the most popular software package for editing and burning CDs and DVDs has
expressed interest in bundling Rainbow Writer’s product into its own package. Odeon
expects that bundling would further boost its sales and allow it to sell the new bundled
product at a higher price, thus raising its profits beyond its current profit of $12 million.
Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
Refer to Figure 14-3. How will Rainbow Writer respond to Odeon’s two possible
offers?
A) Rainbow Writer will reject either offer.
B) Rainbow Writer will only accept an offer of $30 per copy of the software package.
C) Rainbow Writer will only accept an offer of $40 per copy of the software package.
D) Rainbow Writer will accept either offer.
In monopolistic competition there is/are
A) many sellers who each face a downward-sloping demand curve.
B) a few sellers who each face a downward-sloping demand curve.
C) only one seller who faces a downward-sloping demand curve.
D) many sellers who each face a perfectly elastic demand curve.
Figure 1-3
Refer to Figure 1-3. Calculate the area of the trapezoid X.
A) $270
B) $720
C) $810
D) $2,520
Figure 10-9
Refer to Figure 10-9. Consider the budget constraint BC1. If the price of DVDs is $20
and the price of CDs is $10, what is the consumer’s income?
A) $120
B) $240
C) $360
D) $480
A market supply curve reflects the
A) external costs of producing a good or service.
B) external benefits of producing a good or service.
C) social costs of producing a good or service.
D) private costs of producing a good or service.
If you own a $1,000 face value bond with one year remaining to maturity and a five
percent coupon rate and new bonds are paying 12 percent, what is the most you can get
for your old bond?
A) $1,120
B) $1,000
C) $937.50
D) impossible to determine without additional information
Two firms would sometimes be better off if they got together and agreed to charge a
high price, rather than to compete and risk having to charge a lower, competitive price.
What is the greatest deterrent to this strategy?
A) The firms may find that the price they charge is greater than the price that would
maximize their profits.
B) An agreement by firms to charge high prices is illegal. The government can fine the
firms and send their managers to jail.
C) Consumers may resent having to pay high prices and not buy from either of the
firms.
D) One of the firms may decide to lower its price and take business away from the firm
that charged the high price.
Figure 9-2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure
9-2 shows the impact of this tariff.
Refer to Figure 9-2. With the tariff in place, the United States consumes
A) 9 million pounds of rice.
B) 15 million pounds of rice.
C) 31 million pounds of rice.
D) 42 million pounds of rice.
The basic cause of deadweight losses from the existence of common resources and
externalities is
A) a lack of clearly defined and enforceable property rights.
B) the self interested rationality of human beings.
C) the use of a market system to deal with scarcity.
D) the absence of government intervention.
When people who buy insurance change their behavior after the purchase because they
are protected from loss by the insurance, the insurance market is said to face the
problem of
A) moral hazard.
B) adverse selection.
C) asymmetric information.
D) economic irrationality.
The cost of raising beef cattle has risen at the same time as consumer preference for
beef has fallen. In the market for beef, this would be represented by the equilibrium
price ________ and the equilibrium quantity ________.
A) increasing; increasing or decreasing
B) increasing or decreasing; decreasing
C) decreasing; increasing or decreasing
D) increasing or decreasing; increasing
Figure 5-12
College education benefits society by producing a more employable workforce,
reducing crime and creating a better informed citizenry. Thus, the social benefits of
college education exceed the private benefits for any level of college education. This is
illustrated in Figure 5-12.
Refer to Figure 5-12. One way to obtain the economically efficient amount of college
education is for governments to subsidize college education. What is the size of the
per-student Pigovian subsidy that the government must provide to internalize the
external benefits? (Note that the subsidy can be granted to the education institutions or
to the students directly or indirectly; for example, through low-interest student loans.)
A) P2–P0
B) P2–P1
C) P0–P1
D) P1
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian
nation that produces two goods, meat and vegetables.
Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
A) pound of meat
B) 1.2 pounds of meat
C) pounds of meat
D) 12 pounds of meat
Mandatory motorcycle helmet laws are designed to reduce the severity of injuries
resulting from motorcycle involvement in traffic accidents. In this sense, these
mandatory helmet laws are reducing ________ of risky behavior.
A) positive externalities
B) negative externalities
C) the private benefit
D) the social benefit
Congressman Gallstone seeks support from his colleagues for a bill he sponsors that
will establish a new national park in his district. He offers to support Congresswoman
Disrail’s proposal to build a new library in her district in exchange for her vote for his
national park bill. This is an example of
A) regulatory capture.
B) logrolling.
C) rational ignorance.
D) government failure.
Figure 3-2
Refer to Figure 3-2. An increase in price of inputs would be represented by a
movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
Between 1980 and 2011, income inequality in the United States has increased in part
due to rapid technological change. How does technological change contribute to income
inequality?
A) Advancements in technology displace skilled and unskilled workers in certain fields,
leading to higher unemployment rates.
B) Technology complements the skills of the well-educated while rendering redundant
the labor services of unskilled and low-skilled workers. This causes a decline in the
wages of low and unskilled workers relative to other workers.
C) The opportunity cost of investing in technology is investments in human capital. The
resulting decrease in labor’s marginal productivity has lead to lower wages.
D) Technological change favors the owners of capital and since high income individuals
tend to own capital, income inequality is further exacerbated.
The only firms that do not have market power are
A) firms in industries with low barriers to entry.
B) firms that do not advertise their products.
C) firms in perfectly competitive markets.
D) firms that sell identical products.
The “Discount Department Stores” industry is highly concentrated. What does this
mean?
A) There are many large stores such as Wal-Mart, Target, Kohl’s, in this industry.
B) A few large stores account for a significant portion of industry sales.
C) There is cut-throat competition in this industry because there are no entry barriers.
D) The sales volume in this industry is consistently high.
If electric utilities continually reduce their emissions of sulfur dioxide
A) the utilities will eventually be forced to go out of business.
B) the marginal benefit of additional emissions will rise.
C) the marginal cost of further emissions will rise.
D) the total benefit of sulfur dioxide emissions will fall.
Figure 11-18
Refer to Figure 11-18. Starting from point d a movement along isoquant1 to point f
A) increases the total cost of production with no change in output.
B) increases output but not the total cost of production.
C) increases the total cost of production and decreases output.
D) increases both the total cost of production and output.
Figure 4-3
Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a
price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40in
order to raise the price to $18.
Refer to Figure 4-3. What is the value of producer surplus at a price of $18?
A) $240
B) $300
C) $340
D) $720
Suppose that when the price of hamburgers decreases, the Ruiz family increases their
purchases of ketchup. To the Ruiz family,
A) hamburgers and ketchup are complements.
B) hamburgers and ketchup and substitutes.
C) hamburgers and ketchup are normal goods.
D) hamburgers are normal goods and hot dogs are inferior goods.
Figure 10-9
Refer to Figure 10-9. The change in the budget constraint from BC1 to BC2 implies
A) the prices of DVDs and CDs have increased.
B) income and the prices of DVDs and CDs have increased.
C) the price of DVDs has increased and the price of CDs has decreased.
D) the price of DVDs has decreased and the price of CDs has increased.
Which of the following is not an advantage to an insurance company of insuring a large
group of people for health insurance?
A) The characteristics of a large group are likely to reflect those of the entire
population.
B) It is easier to accurately predict the number of claims for a group than for an
individual.
C) When all group members pay the premium, the problem of moral hazard is reduced.
D) When all group members pay the premium, the problem of adverse selection is
reduced.
Table 12-1
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces
plastic camera cases. Assume that output can only be increased in batches of 100 units.
Refer to Table 12-1. If the market price of each camera case is $8, what is the firm’s
total revenue?
A) $2,400
B) $3,200
C) $4000
D) $4,800
Total revenue equals
A) price per unit times quantity sold.
B) price per unit times quantity supplied.
C) price per unit times change in quantity sold.
D) change in price per unit times quantity sold.
Table 3-2
Refer to Table 3-2. The table above shows the demand schedules for caviar of two
individuals (Ari and Sonia) and the rest of the market. If the price of caviar falls from
$45 to $35, the market quantity demanded would
A) decrease by 50 oz.
B) increase by 70 oz.
C) increase by 50 oz.
D) decrease by 70 oz.
Define a corporation.
“Buy low and sell high is advice given to people who want to make a profit by buying
and selling shares of stock. Arbitrage is defined as buying a product in one market at a
low price and reselling it in another market at a high price. Therefore, when stock
brokers buy and sell stocks to earn a profit they are engaging in arbitrage.” Evaluate this
statement; state whether it is true or false and explain your answer.
There are many cattle ranchers in the world, and there are also many McDonald’s
restaurants in the world. Why, then, does a McDonald’s restaurant face a downward
sloping demand curve while a cattle rancher faces a horizontal demand curve?
Dalton, Georgia, a town with a population less than 35,000, has developed into a
leading producer of carpets, despite its small size. Some government officials argue that
the success achieved by firms in Dalton in developing a comparative advantage in
carpet making because of external economies can be used to justify trade barriers as a
means to protect an “infant industry.” After an infant industry gains experience it can
compete in international markets and the trade barriers can be removed. What
objections do economists make to this argument in favor of trade barriers?
Grant has $200 to spend each month on restaurant meals and jazz performances at his
neighborhood jazz club. The price of a typical restaurant meal is $20 and the price of a
jazz performance ticket is $10. Grant is maximizing his utility by consuming 6
restaurant meals and attending 8 jazz performances. Suppose Grant still has $200 to
spend, but the price of restaurant meal rises to $25, while the price of jazz performance
ticket drops to $8. Is Grant better off or worse off than he was before the price change?
Use a budget constraint/indifference curve graph to illustrate your answer.
“When it comes to public goods, individuals do not reveal their true preferences
because it is not in their self interest to do so.” Evaluate this statement.
Most economists are concerned about entry barriers. Why is this so important to them?
Discuss the correct and incorrect economic analysis in the following statement.
“If good weather in Hawaii creates a bumper crop of pineapples, the supply of
pineapples will increase. This will result in a price decrease, which will then cause the
supply of pineapples to decrease.”
What are the main sources of health insurance in the United States?
Suppose the current price of oil is $90 a barrel and the quantity supplied is 800 million
barrels per day. If the price elasticity of supply for oil in the short run is estimated at
0.5, use the midpoint formula to calculate the percentage change in quantity supplied
when the price of oil rises to $98 a barrel.
Damian owns a tattoo parlor and has hired three tattoo artists to work for him. The
marginal product of labor is 8 for the first artist, 12 for the second artist, and 7 for the
third artist. What is Damian’s average product of labor for these three tattoo artists?
Why are many companies concerned about brand management?
The following table contains the actual prices charged by four Websites for the
PlayStation 3 game The Last of Us in October 2013.
Explain whether the information in this table contradicts the law of one price.
Describe the global business environment and each of its four elements.
The marginal cost for Java Joe’s to produce its first cup of coffee is $0.75. Its marginal
cost to produce its second cup of coffee is $1.25. Its marginal cost increases by $0.50
for each additional cup of coffee it produces. Suppose the market price for coffee is
$2.25. Construct a graph showing the producer surplus for each cup of coffee Java Joe’s
will sell. How many cups of coffee will Java Joe’s sell? What is the value of the
producer surplus Java Joe’s receives for each cup of coffee it sells?
Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output
per day and her costs are as follows:
Suppose the current equilibrium price in the teapot market is $15. To maximize profit,
how many teapots will Veronica produce, what price will she charge, and how much
profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph
should include Veronica’s demand, ATC, AVC, MC, and MR curves, the price she is
charging, the quantity she is producing, and the area representing her profit (or loss).