(Table: Trade-off of Study Time
and Leisure Time) Look at the table Trade-off of Study Time and Leisure Time. A
student sleeps 8 hours per day and divides the remaining time between study time and
leisure time. The table shows the combinations of study and leisure time that can be
produced in the 16 waking hours of each day. If a student decides to consume one
additional hour of leisure time, how many hours of study time must she give up?
A) 4
B) 0.25
C) 1
D) 16
State governments levy excise taxes on alcohol because:
A) they want to subsidize alcohol production.
B) they want to encourage individuals to produce their own alcohol.
C) it discourages drinking alcohol while raising revenue for the government.
D) it is politically popular with religious groups.
The income elasticity of demand of an inferior good:
A) is less than 0.
B) is equal to 0.
C) is greater than 0.
D) cannot be determined.
Figure: The Market for Tea in Sri Lanka
(Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri
Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises
to PW and consumer surplus _____ to _____.
A) falls; F
B) falls; F + G
C) rises; F + G + H + I
D) rises; G + H + I
When marginal cost is below average variable cost, average variable cost must be:
A) above average total cost.
B) below average fixed cost.
C) falling.
D) rising.
Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $30,000 tax on yachts and collects it from the yacht suppliers,
the _____ curve will shift _____ by _____.
A) demand; downward; $15,000
B) supply; upward; $15,000
C) supply; upward; $30,000
D) demand; downward; $30,000
A new teacher often makes less than a teacher with 20 years’ experience because of:
A) discrimination.
B) differences in human capital.
C) efficiency wages.
D) differences in physical capital.
Which of the following is NOT a factor of production?
A) labor
B) machines and buildings
C) land
D) money
Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns
5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started
Wang’s Wicker Furniture Store. He rented a showroom for $20,000 for the year,
purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and
advertising. Instead of using the capital for his own business, he could rent it to a rival
firm and earn $5,000 a year. In his first year, his revenue was $150,000.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. The economic profit of Wang’s Wicker Furniture Store is:
A) $67,000.
B) $0.
C) “$20,000.
D) “$35,000.
A restaurant manager has estimated that the price elasticity of demand for meals is 2. If
the restaurant increases menu prices by 5%, she can expect the number of meals sold to
decrease by _____ and total revenue to _____.
A) 10%; increase
B) 5%; stay constant
C) 10%; fall
D) 2.5%; fall
Labor with a particular skill level and training is used in only two industries: grape
cultivation and cranberry cultivation. Which of the following is likely to cause an
INCREASE in the demand for this type of labor?
A) improved technology that leads to more efficient machines for grape picking
B) publication of a report asserting that drinking two glasses of grape or cranberry juice
every day improves digestion and heart health
C) a report by the USDA that an increasing proportion of grapes are contaminated with
unacceptable pesticides
D) a decrease in the acreage of cranberry bogs
Taxation according to the ability-to-pay principle is best illustrated in the United States
by _____ taxes.
A) sales
B) personal income
C) excise
D) gasoline
Goods and services purchased from abroad are _____, while goods and services sold
abroad are _____.
A) exports; imports
B) imports; exports
C) exports; quotas
D) quotas; factors
When marginal cost is rising:
A) average variable cost must be rising.
B) average total cost must be rising.
C) average variable cost and average total cost must be falling.
D) both average variable cost and average total cost may be rising or falling.
(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls.
Marginal utility is zero for the _____ roll.
A) first
B) second
C) third
D) fifth
Suppose that a monopoly computer chip maker increases production from 10
microchips to 11 microchips. If the market price declines from $30 per unit to $29 per
unit, marginal revenue for the eleventh unit is:
A) $1.
B) $9.
C) $19.
D) $29.
Specialization and trade should lead to all of the following EXCEPT:
A) individuals learning specific skills and earning a salary.
B) a decrease in total economic output.
C) higher living standards.
D) the exchange of goods and services in markets.
The market price of airline flights increased recently. Some economists suggest that the
price increased because of an increase in the number of business travelers. They believe
that in the market for flights:
A) supply increased.
B) supply decreased.
C) demand increased.
D) demand decreased.
(Table: Lilly’s Apple Orchard) Look at the table Lilly’s Apple Orchard. Lilly is the
price-taking owner of an apple orchard; the orchard’s variable costs are given in the
table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $85, we
would expect total industry output to _____ and Lilly’s output to _____ in the long run.
A) rise; rise
B) fall; fall
C) fall; rise
D) rise; fall
The premium for a(n) _____ insurance policy is equal to the expected value of the
claim.
A) fair
B) premium
C) unfair
D) diversification
Statements that make value judgments are:
A) pecuniary.
B) positive.
C) nominal.
D) normative.
Which of the following Herfindahl”Hirschman indices is most likely to indicate a
perfectly competitive market?
A) 100
B) 1,800
C) 10,000
D) 100,000
Figure: Price Controls
(Figure: Price Controls) Look at the graph Price Controls. A price floor has been set at
point b. The area of deadweight loss that results from this price floor is:
A) egh.
B) ghi.
C) fgi.
D) efg.
To achieve the gains from trade, each nation should specialize in the production of a
good or service if:
A) its production possibility frontier is farther from the origin than that of any other
country.
B) its production possibility frontier is closer to the origin than that of any other
country.
C) the country can make the product using fewer resources than any other country.
D) the country can make the product while forgoing fewer alternative products than any
other country.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to decrease.
A) 3.3; 2.1
B) 3.3; 0.5
C) 0.2; 2.1
D) 0.2; 0.5
Which of the following is TRUE?
A) A monopoly firm is a price maker.
B) MR = P if the demand curve is downward-sloping.
C) MR = MC is a profit-maximizing rule for firms in perfect competition only.
D) Monopolies tend to charge lower prices than perfectly competitive firms.
Japan must give up the production of 75 computers to produce 25 additional cellular
telephones. The opportunity cost of producing 3 computers is _____ cell phone(s).
A) 1
B) 3
C) 22
D) 28
Figure: Profits in Monopolistic Competition
(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic
Competition. A long-run equilibrium is illustrated at the profit-maximizing price _____
in panel _____.
A) A; (A)
B) E; (B)
C) B; (A)
D) N; (C)
Figure: Supply and Demand in Agriculture
(Figure: Supply and Demand in Agriculture) Look at the figure Supply and Demand in
Agriculture. The government could help increase farmers’ income by setting a price
_____ at _____, causing a _____ of _____.
A) floor; P4; surplus; Q3 ” Q0
B) floor; P2; surplus; Q2 ” Q0
C) ceiling; P4; surplus; Q2 ” Q1
D) floor; P1; shortage; Q3 ” Q0