Refer to the graphs shown. Assume the graph reflects demand in the egg market. Which
arrow best captures the impact of increased consumer concern about cholesterol on the
egg market?
A. A
B. B
C. C
D. D
Answer:
If a negative externality is associated with burning firewood:
A. the marginal social cost of burning firewood falls short of its price.
B. the marginal social cost of burning firewood is exactly equal to its price.
C. less than the efficient amount of firewood for burning will be used each year.
D. the marginal social cost of burning firewood exceeds the price of burning firewood.
Answer:
In the early 2000s, the number of Eastern Europeans moving to England to join the
labor force increased. This has led to fears by British citizens that Eastern Europeans
will steal jobs from Western Europeans. What best describes their fear?
A. Wages in Britain will fall as the demand for immigrants increases.
B. Cost of living in Britain will increase as the demand for goods increases.
C. Wages in Britain will fall since the quantity of labor supplied is increasing.
D. Wages in Britain will fall since the supply of labor is increasing.
Answer:
Suppose a perfectly competitive firm’s marginal revenue is $10 and its marginal cost is
$11. Under these circumstances the firm:
A. is maximizing profit and should not change output.
B. is not maximizing profit and should increase output.
C. is not maximizing profit and should reduce output.
D. needs to know the market price before it can determine whether it is maximizing
profit.
Answer:
Suppose that in Colombia one unit of labor can produce 8 tons of papayas or 2 tons of
bananas and in Brazil, one unit of labor can produce either 4 tons of papayas or 1 ton of
bananas. Given this information, which of the following statements is true?
A. Columbia has a comparative advantage in producing papayas but not bananas.
B. Columbia has a comparative advantage in producing papayas and bananas.
C. These countries would increase combined consumption if they specialized and
traded.
D. These countries cannot gain from trading.
Answer:
Advertising may lead to lower average total costs if:
A. sales increase and there are diseconomies of scale in production.
B. the firm’s product is not sufficiently differentiated.
C. the firm’s product is overly differentiated.
D. sales increase and there are economies of scale in production.
Answer:
Refer to the following table to answer the question. A local government is looking to
reduce “undesirable” behavior on the part of its citizens: drinking alcoholic beverages
and smoking. Assuming people cannot shop for alcoholic beverages out of town, a 10
percent sin tax would have the largest proportionate effect on the sale of:
A. cigarettes.
B. liquor.
C. beer.
D. wine.
Answer:
If medical insurers could use information contained in DNA to predict the likelihood of
major medical illnesses, the most likely outcome is that:
A. there would be an adverse selection problem and average insurance rates would rise.
B. there would be an adverse selection problem and average insurance rates would fall.
C. the adverse selection problem would be decreased and average insurance rates would
rise.
D. the adverse selection problem would be decreased and average insurance rates would
fall.
Answer:
If buyers cannot distinguish between “lemons” and “cherries” in the used car market but
sellers can, the price buyers are willing to pay for used cars will be:
A. high enough to guarantee that at least 50 percent of the used cars offered for sale are
“cherries.”
B. so low that sellers with “cherries” will be unwilling to sell.
C. so low that sellers with “lemons” will be unwilling to sell.
D. equal to zero since no one will take the chance of purchasing a “lemon” even if the
value of a car known to be a lemon is greater than zero.
Answer:
The difference between a monopolist and a monopolistic competitor is that:
A. a monopolist equates marginal revenue and marginal cost whereas a monopolistic
competitor equates price and marginal cost.
B. the average total cost curve of a monopolistic competitor is tangent to the demand
curve in long-run equilibrium, but the average total cost curve of a monopolist can be in
a position below the price in long-run equilibrium.
C. the average total cost curve of a monopolist is tangent to the demand curve in
long-run equilibrium, but the average total cost curve of a monopolistic competitor can
be in a position below the price in long-run equilibrium.
D. the average total cost curve of a monopolist is tangent to the demand curve in
long-run equilibrium, but the average total cost curve of a monopolistic competitor can
be in a position above the price in long-run equilibrium.
Answer:
If quantity demanded changes infinitely when the price changes, the demand:
A. is slightly elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Answer:
It has been estimated that the price elasticity of demand for attending baseball games is
0.23. Other things held constant, a 10 percent increase in attendance can be explained
by a:
A. 43.48 percent fall in the price of a ticket.
B. 43.48 percent rise in the price of a ticket.
C. 23 percent fall in the price of a ticket.
D. 23 percent rise in the price of a ticket.
Answer:
A voluntary restraint agreement:
A. is prohibited under the GATT treaty and has become less common recently.
B. does not, unlike a quota, affect the quantity of imports.
C. does not, unlike a tariff, affect the price of imports.
D. raises the price of imports in the same way as a quota.
Answer:
The opportunity cost of attending college is likely to be highest for a high school
graduate:
A. whose next-best option is to flip hamburgers and who has access to no student loans.
B. whose next-best option is to be a retail salesperson and whose family is extremely
wealthy.
C. whose next-best option is to drive a school bus but who has the promise of a
six-figure salary after college.
D. who is capable of competing successfully in professional tennis.
Answer:
If you move from a point inside the production possibility curve to a point on the
production possibility curve, it follows that efficiency is:
A. increased because the economy is now on the production possibility curve.
B. increased only if production of both goods increases.
C. increased as long as the combined output of both goods increases.
D. reduced if less of one good is produced.
Answer:
You’ve purchased a car for $10,000 and now are deciding whether to have a moonroof
installed for $400 and a security system installed for $200. The marginal cost of adding
both the moonroof and the security system is:
A. $10,600.
B. $10,000.
C. $400.
D. $600.
Answer:
Existing employees prefer:
A. inelastic supplies of labor.
B. elastic supplies of labor.
C. unit-elastic supplies of labor.
D. negative elastic supplies of labor.
Answer:
Macroeconomics is:
A. the study of individual choice and how that choice is influenced by economic forces.
B. the study of the pricing policies of firms and the purchasing decisions of households.
C. the study of aggregate economic relationships.
D. an analysis of economic reality that proceeds from the parts to the whole.
Answer:
To choose, based on the principle of rational choice, among combinations of goods with
a cost in money, one must know the:
A. total utility of the combination of goods and their price.
B. total utility only.
C. marginal utility of each additional good and its price.
D. marginal utility only.
Answer:
Refer to the graph shown. The bottom 20 percent of the families earn:
A. 6.6 percent of the income.
B. 17.3 percent of the income.
C. 10.7 percent of the income.
D. 20 percent of the income.
Answer:
Suppose a price floor is imposed on eggs above their equilibrium price. The likely
result will be:
A. a lower equilibrium price for eggs as the demand curve for eggs shifts left.
B. a higher equilibrium price for eggs as the supply curve for eggs shifts left.
C. a decrease in the quantity of eggs demanded.
D. an increase in the quantity of eggs demanded.
Answer:
Refer to the graph shown. Total fixed cost of producing Q * is represented by:
A. area 0Q * AF.
B. area ABEF.
C. area ACDF.
D. cannot be determined.
Answer:
The inefficiency associated with negative externalities is most likely the result of:
A. special interest groups.
B. the fallacy of composition.
C. government intervention.
D. poorly specified property rights.
Answer:
A per-unit tax on coffee paid by the seller causes the:
A. supply of coffee curve to shift upward by the amount of the per-unit tax.
B. supply of coffee curve to shift downward by the amount of the per-unit tax.
C. demand for coffee curve to shift upward by the amount of the per-unit tax.
D. demand for coffee curve to shift downward by the amount of the per-unit tax.
Answer:
Monopolistic competition is similar to perfect competition in that:
A. long-run profits tend to zero in both.
B. output is at minimum average total cost in both.
C. both entail the production of differentiated products.
D. firms advertise in both cases.
Answer:
The price elasticity of supply is the:
A. change in the quantity supplied divided by the change in price.
B. percentage change in the quantity supplied divided by the percentage change in
price.
C. change in the price divided by the change in the quantity supplied.
D. percentage change in the price divided by the percentage change in the quantity
supplied.
Answer:
Although many legal music download sites started up, because of the technology, only a
few have survived. It is likely that online music firms:
A. experience economies of scale.
B. have normal short-run cost curves.
C. face increasing long-run average cost curves.
D. face horizontal demand curves.
Answer:
A curve that shows the wealth distribution for the United States would be:
A. equal to the Lorenz curve.
B. below the Lorenz curve.
C. above the Lorenz curve.
D. above the diagonal line.
Answer:
Honus Wagner, a major league baseball player from 1897 to 1917 and one of the first
five men inducted into the Baseball Hall of fame, had his baseball card pulled from
cigarette packs because he wasn’t being paid for their distribution. What best describes
the effect of his action on the market for his baseball card?
A. Supply shifted to the left, price rose, and quantity demanded fell.
B. Supply shifted to the left, price rose, and demand shifted to the left.
C. Demand shifted to the left, price fell, and quantity supplied fell.
D. Demand shifted to the left, price fell, and supply fell.
Answer:
If Portuguese wines are an inferior good, higher incomes will cause:
A. an increase in the demand for Portuguese wines.
B. a decrease in the demand for Portuguese wines.
C. an increase in the quantity demanded for Portuguese wines.
D. a decrease in the quantity demanded for Portuguese wines.
Answer:
If a firm has a monopoly over the sale of photographic paper and seeks to maximize
profits, it:
A. adjusts the price of the product until demand becomes perfectly inelastic.
B. will set the price of the product equal to the marginal cost of production.
C. will set the price of the product equal to the average total cost of production.
D. will set the price of the product so that its marginal revenue equals its marginal cost.
Answer:
Measuring the price of gasoline in dollars, an economist calculates the price elasticity
of demand to be .5. What would the price elasticity of demand be if the economist had
chosen to measure the price of gasoline in pennies rather than dollars?
A. .5
B. .05
C. .005
D. 50
Answer:
Refer to the graph shown. If the price were somehow held at $8.15 per unit, consumer
surplus would then equal:
A. 1,400.
B. 600.
C. 423.5.
D. 1,171.5.
Answer: