Airlines often engage in last-minute price cutting to fill remaining empty seats on a
flight because this practice will generally
A) prevent rival airlines from competing in that market.
B) increase marginal revenue more than marginal cost.
C) maximize marginal revenue.
D) discourage rivals from matching price cuts.
The present value of $300 received 5 years in the future would be calculated as which
of the following when the interest rate is 5%?
A) 300/(1.5)5
B) 300/(1.05)5
C) 300 × 1.5 × 5
D) 05/300
The Sherman Act prohibited
A) marginal cost pricing.
B) setting price above marginal cost.
C) collusive price agreements among rival sellers.
D) selling below average total cost.
Negative externalities and the tragedy of the commons are problems that have a
common source. What is this common source?
A) self-interest motives of producers and consumers
B) a lack of concern for human rights
C) a lack of competition
D) a lack of clearly defined and enforced property rights
In 2011, Standard & Poor’s (S&P) changed its rating on U.S. Treasury bonds from
________ based on the state of the federal government’s budget deficit.
A) “A” to “D”
B) “A” to “AAA”
C) “A+” to “B+”
D) “AAA” to “AA+”
Table 17-3
Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input
and output markets. The firm hires labor at a constant wage rate of $800 per week and
sells microwave ovens at a constant price of $80. Table 17-3 shows the relationship
between the quantity of labor it hires and the quantity of microwave ovens it produces.
Refer to Table 17-3. What is Hotspur’s profit maximizing quantity of labor?
A) 2 workers
B) 3 workers
C) 5 workers
D) 6 workers
Why does a prisoner’s dilemma lead to a noncooperative equilibrium?
A) because each player had agreed before the game started to minimize the harm that he
can inflict on the other players
B) because each player is uncertain how other players will play the game
C) because players must choose from a limited number of non-dominant strategies
D) because each rational player has a dominant strategy to play a certain way regardless
of what other players do
What is a network externality?
A) It refers to having a network of suppliers and buyers for a good or service.
B) It refers to lobbying to form a public enterprise.
C) It refers to a situation in which a product’s usefulness increases with the number of
people using it.
D) It refers to a product that requires connection to a network for it to be useful.
Because of the shortcomings of concentration ratios, some economists prefer another
measure of competition called
A) the Competition Index.
B) the Marginal Revenue-Marginal Cost Index.
C) the Economic Profit Index.
D) the Herfindahl-Hirschman Index.
When Zynga, the company behind the social games CityVille and Words With Friends,
sold stock to the public for the first time in December 2011, funds were being raised in
a ________ market, and when those newly issued shares are resold to other buyers, the
sales take place in a ________ market.
A) primary; primary
B) primary; secondary
C) secondary; primary
D) secondary; secondary
Figure 5-4
Suppose there are several paper mills producing paper for a market. These mills,
located upstream from a fishing village, discharge a large amount of wastewater into the
river. The waste material affects the number of fish in the river and the use of the river
for recreation and as a public water supply source. Figure 5-4 shows the paper market.
Use this Figure to answer the following question(s).
Refer to Figure 5-4.What is the economically efficient output level?
A) Q1
B) Q2 minus Q1
C) Q2
D) Q1 plus Q2
________ have a horizontal and a vertical axis and are used in economics to illustrate
relationships between two economic variables.
A) Two-dimensional graphs
B) One-dimensional graphs
C) Pie Charts
D) Bar graphs
Allison’s Auto Art is a company that applies pinstripes to vehicles. Allison’s cost for a
basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total
price of $175, Allison will apply a fancier 3-color pinstripe application to an
automobile, a service that adds an additional $40 to the total cost of the package.
Should Allison continue to offer the 3-color pinstripe application?
A) yes, she still makes a profit by selling the 3-color application
B) yes, but only if she lowers the price of the 1-color application
C) no, her marginal benefit is less than her marginal cost
D) More information is needed for Allison to make this decision.
Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it
on eBay to Kyle for $60. Which of the following statements is true?
A) The transaction has made Lou better off and Kyle worse off.
B) The transaction is economically inefficient.
C) The transaction has made Lou and Kyle better off.
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction.
Figure 12-5
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost,
perfectly competitive industry.
Refer to Figure 12-5. The figure shows the cost structure of a firm in a perfectly
competitive market. If the firm’s fixed cost increases by $1,000 due to a new
environmental regulation, what happens to its profit-maximizing output level?
A) It increases.
B) It decreases.
C) It remains the same.
D) It could increase, decrease, or remain constant, depending on whether the firm is
able to cut costs somewhere else.
The main purpose of most tariffs and quotas is to
A) raise revenue for the government.
B) reduce the prices consumers pay for goods and services.
C) reduce the foreign competition that domestic firms face.
D) improve the quality of goods and services imported into the country.
Is a monopolistically competitive firm productively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because it produces where marginal cost equals marginal revenue.
C) No, because price is greater than marginal cost.
D) Yes, because price equals average total cost.
Table 2-7
Table 2-7 shows the output per month of two people, Fred and Barney. They can either
devote their time to making pogo sticks or making unicycles.
Refer to Table 2-7. Which of the following statements is true?
A) Fred has an absolute advantage in making both products.
B) Barney has an absolute advantage in making both products.
C) Barney has an absolute advantage in making pogo sticks and Fred in making
unicycles.
D) Barney has an absolute advantage in making unicycles and Fred in making pogo
sticks.
The coupon rate of a bond is equal to
A) the coupon payment.
B) the interest payment.
C) the interest rate.
D) the face value.
The larger the share of a good in a consumer’s budget, holding everything else constant,
the
A) more price elastic is a consumer’s demand.
B) more vertical is a consumer’s demand curve.
C) more price inelastic is a consumer’s demand.
D) more unit elastic is a consumer’s demand.
A monopolistically competitive market is described as one in which there are
A) a few firms producing an identical product.
B) a large number of firms selling similar, but not identical, products.
C) a few firms producing differentiated products.
D) one large firm and many small firms producing identical products.
You have a bond that pays $60 per year in coupon payments. Which of the following
would result in an increase in the price of your bond?
A) Coupon payments on newly-issued bonds rise to $80 per year.
B) The likelihood that the firm issuing your bond will default on debt increases.
C) The price of a share of stock in the company falls.
D) Coupon payments on newly-issued bonds fall to $50 per year.
Table 17-2
Refer to Table 17-2. The marginal revenue product of labor from the third unit of labor
is
A) $5,460.
B) $1,560.
C) $1,260.
D) $780.
Which of the following statements about commission systems of compensation is false?
A) They increase the risk to workers because sometimes output declines for reasons not
connected to the worker’s effort.
B) During sluggish periods, an employer’s payroll expenses will decline along with
sales.
C) If workers are paid on the basis of the number of units produced, they may become
less concerned about quality.
D) The lack of income stability will induce the more productive workers to leave in
search of more secure employment.
Table 13-2
Eco Energy is a monopolistically competitive producer of a sports beverage called
Power On. Table 13-2 shows the firm’s demand and cost schedules.
Refer to Table 13-2. What is likely to happen to the product’s price in the long run?
A) It will fall.
B) It will increase.
C) It will remain constant.
D) This cannot be determined without information on its long-run demand curve.
If an airport decides to expand by building an additional passenger terminal, and in
doing so it lowers its average cost per airplane landing, it was previously operating at
A) minimum efficient scale.
B) more than minimum efficient scale.
C) less than minimum efficient scale.
D) minimum capacity.
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last
unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana
purchased, she
A) is maximizing total utility and does not want to change her consumption of ankle
socks or bandanas.
B) wants to consume more ankle socks and fewer bandanas.
C) wants to consume more bandanas and fewer ankle socks.
D) wants to consume less of both ankle sock and bandanas.
Because leisure is a normal good, an increase in the wage rate will result in
A) an increase in the quantity of labor supplied because of both the substitution effect
and the income effect.
B) a decrease in the quantity of labor supplied because of the substitution effect and an
increase in the quantity of labor supplied because of the income effect.
C) an increase in the quantity of labor supplied because of the substitution effect and a
decrease in the quantity of labor supplied because of the income effect.
D) an increase in the quantity of labor supplied because of the substitution effect. At
low wages the income effect causes an increase in the quantity of labor supplied, but at
high wages the income effect causes a decrease in the quantity of labor supplied as the
wage rises.
Figure 6-5
Refer to Figure 6-5. The section of the demand curve labeled “A” represents
A) the inelastic section of the demand curve.
B) the unit-elastic section of the demand curve.
C) the elastic section of the demand curve.
D) the perfectly elastic section of the demand curve.
Figure 13-13
Refer to Figure 13-13. Economies of scale are exhausted at which output level?
A) Q1 units
B) Q2 units
C) Q3 units
D) more than Q1 units