Figure 2.4
Refer to Figure 2.4. The economy moves from Point A to Point D. This could be
explained by
A) a reduction in unemployment.
B) an improvement in technology.
C) an increase in economic growth.
D) a change in society’s preferences for motorcycles versus hybrid cars.
When one country can produce a product at a lower cost in terms of other goods, that
country is said to have
A) an absolute advantage.
B) a comparative advantage.
C) a productive advantage.
D) an unfair advantage.
When total product is maximized, marginal product
A) and average product are zero.
B) is positive, but average product is zero.
C) is zero, but average product is positive.
D) and average product are positive.
In the distribution of world income, the richest ________ of the world’s population
earns about 79% of the world income.
A) one-tenth
B) one-fifth
C) one-fourth
D) one-half
Figure 12.2
Refer to Figure 12.2. A technological advance causes the supply of personal computers
to increase. The graph of this situation represents a ________ because it considers only
the personal computer industry.
A) general equilibrium analysis
B) partial equilibrium analysis
C) firm-specific analysis
D) technological analysis
A government is considering levying an alcohol tax to raise revenue to finance health
care benefits. People for the tax argue that alcohol demand is price inelastic. Which of
the following statements is true?
A) The alcohol tax may not raise as much revenue as anticipated in the years to come
because alcohol demand is more elastic the longer the period of time consumers have to
adjust.
B) This is a very good way to raise revenue both in the short term and in the long term
because there are no close substitutes for alcohol.
C) This tax will not raise much revenue either in the short term or the long term because
demand is price inelastic.
D) No tax revenue can be raised in this way because alcohol sellers will just lower their
price by the amount of the tax, and therefore the consumer price of alcohol will not
change.
Table 14.1
B’s Strategy
Refer to Table 14.1. The Nash equilibrium in the game is ________.
A) (Raise Price, Don’t Raise Price)
B) (Don’t Raise Price, Raise Price)
C) (Don’t Raise Price, Don’t Raise Price)
D) Both A and B are correct.
You have been hired by the No Hassle Collection Agency to provide economic advice.
The owner of the agency tells you that No Hassle’s only variable input is the number of
collection agents. The hourly wage for collection agents is $30.00. The marginal
revenue product curve for collection agents reaches its maximum at five workers with a
marginal revenue product of $34.00. What advice would you give this firm?
A) Hire five collection agents so as to maximize profits.
B) Shut down immediately, as the firm is not able to cover all of its variable costs.
C) Decrease the wage rate paid to collection agents so that their marginal revenue
product will decrease.
D) Hire collection agents until the marginal revenue product is equal to the wagewhich
will occur when more than five agents are employed.
Figure 19.1
Refer to Figure 19.1. Prior to the imposition of a payroll tax, this labor market was in
equilibrium at a wage of ________ and employment of ________ workers.
A) $5.00; 500
B) $7.00; 800
C) $10.00; 700
D) $12.00; 650
Compared to a perfectly competitive firm having the same cost curves, a
monopolistically competitive firm ________ output and ________ prices.
A) reduces; raises
B) raises; reduces
C) reduces; reduces
D) raises; raises
An example of ________ is a power plant generating water pollution.
A) a positive production externality
B) a negative production externality
C) a public good
D) the free-rider problem
Which of the following is NOT true of a market economy?
A) In its pure form, it is also known as a laissez-faire economy.
B) Decisions are regulated by a central agency.
C) The interaction between buyers and sellers answers the basic economic questions of
what gets produced, how it gets produced, and who gets it.
D) It relies on millions of individual economic decisions to determine economic
outcomes.
Total revenue minus total cost is equal to
A) the rate of return.
B) marginal revenue.
C) profit.
D) net cost.
You are the owner and only employee of a company that writes computer software that
is used by gamblers to collect sports data. Last year you earned a total revenue of
$90,000. Your costs for equipment, rent, and supplies were $60,000. To start this
business you invested an amount of your own capital that could pay you a return of
$40,000 a year.
A yearly normal rate of return for your computer software firm would be
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
Figure 1.4
Refer to Figure 1.4. Which of the curves or lines has an infinite slope throughout?
A) A
B) B
C) C
D) D
The difference between money income and economic income is ________.
A) money income excludes but economic income includes cash and noncash transfer
payments and capital gains income
B) economic income excludes but money income includes cash and noncash transfer
payments and capital gains income
C) money income excludes but economic income includes noncash transfer payments
and capital gains
D) economic income excludes but money income includes noncash transfer payments
and capital gains
Suppose you could measure the value in monetary terms for the following three things
that you could do with your time this Friday evening: a) doing your homework – $50, 2)
spending time with your friends – $40 or c) taking a nap – $30. Armed with only this
information which activity has the lowest opportunity cost? Which two activities have
the same opportunity cost? Based on what you have discovered what is the best use of
your time and why?
Figure 6.1
Refer to Figure 6.1. Assume Tom’s budget constraint is AC. Given his current monthly
income he will not have enough income to purchase the bundle represented by point
A) A.
B) B.
C) E.
D) D.
The marginal benefit for a particular food is described by MB = 30 – q,
where q refers to the quantity of the food. The marginal cost of producing the food is
described by MC = 2q. There is a negative externality associated with food production
and the marginal social cost of food production is MSC = 4q.
The competitive output level is ________ and the competitive price is ________.
A) 10 units of food; $20
B) 6 units of food; $24
C) 0 units of food; $0
D) 29 units of food; $25.71
The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where
MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze
sells 200 ice cream sandwiches. Its AVC is $4.00 and its AFC is $3.00. What should
Taste Freeze do?
A) Continue to produce because price exceeds AVC.
B) Shut down and produce zero sandwiches because price is less than ATC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.
Traffic congestion is an example of a(n)
A) economy of scale.
B) externality.
C) public good.
D) government failure.
Figure 3.12
Refer to Figure 3.12. The market is initially in equilibrium at Point A. If demand shifts
from D1 to D2 and there is an excess demand of 150 million pounds of burritos, the
price of burritos would be
A) $1.50.
B) $3.00.
C) $4.00.
D) $6.00.
The most common argument for income redistribution is that
A) it worksit reduces the poverty rate.
B) it improves efficiency in the economy.
C) it provides more incentive for people to try to better themselves.
D) a society as wealthy as the United States has a moral obligation to provide its
members with the basic necessities of life.
Figure 8.9
Refer to Figure 8.9. At the market price of $18, if this farmer produces the profit
maximizing quantity, what profit will he make?
A) $0
B) $2,000
C) $700
D) indeterminate from this information
Figure 3.15
Refer to Figure 3.15. An increase in the wage rate of gardenburger makers will cause a
movement from Point B on supply curve S2 to
A) Point A on supply curve S2.
B) Point C on supply curve S2.
C) supply curve S3.
D) supply curve S1.
The table shows the relationship between income and utility for Terri.
Table 17.3
Refer to Table 17.3. Suppose Terri has a 25% chance of becoming disabled in any given
year. If she does become disabled, she will earn $0. If Terri does not become disabled,
she will earn her usual salary of $80,000. Terri has the opportunity to purchase
disability insurance for $20,000 which will pay her her full salary in the event she
becomes disabled. Would Terri purchase such a policy?
A) yes
B) no
C) maybe
D) indeterminate from the given information
The measure or value upon which a tax is levied is the
A) tax base.
B) tax rate.
C) tax structure.
D) tax incidence.
Figure 6.1
Refer to Figure 6.1. Assume Tom’s budget constraint is AC. Given his current monthly
income, he CANNOT purchase the bundle of goods at point
A) A.
B) B.
C) E.
D) D.
According to the theory of comparative advantage, a country should
A) specialize in and export goods with the highest opportunity cost.
B) specialize in and export goods with the lowest production cost.
C) specialize in and export goods with the lowest opportunity cost.
D) specialize in and export goods with the lowest average cost.
The feature that distinguishes perfect competition from monopolistic competition is that
perfectly competitive firms are
A) large relative to the market.
B) price takers.
C) able to block the entry of other firms.
D) unable to differentiate their products.
Figure 7.9
Refer to Figure 7.9. The slope of isocost CE is
A) -1.
B) -2/3.
C)0
D) indeterminate from this information, as the prices of capital and labor are not given.
________ is an industry market structure with a small number of firms, each large
enough to impact the market price of its output.
A) A monopoly
B) An oligopoly
C) Monopolistic competition
D) Perfect competition
You are asked to lend a friend $10,000 for a year. At the end of the year your friend
agrees to pay you $10,500. The interest rate on this loan is
A) 05%.
B) 0%
C) 105%.
D) indeterminate from this information.
Depreciation is
A) the sum of gross and net investment.
B) new additions to a firm’s stock of intangible capital.
C) the decline in the economic value of an asset over time.
D) the decrease in the general price level.
Figure 2.5
Refer to Figure 2.5. The most desirable production alternative for society would be
A) either Point B or Point C, as the total amount being produced at either of these points
is approximately the same.
B) indeterminate from this information, as we don’t have any information about the
society’s desires.
C) Point C, as at this point there are approximately equal amounts of LCD and plasma
TVs being produced.
D) at any of the labeled points, as all of the points represent an efficient allocation of
resources.
How is the market demand for public goods derived?
What are the arguments in favor of the redistribution of income?
What does it mean for a good to have a demand-determined price?
The firm below sells its output in a monopolistically competitive market. Show the
firm’s profit-maximizing level of output. Is the firm earning a profit or a loss? Show
your answer on the graph.
A bureaucrat at a public utility commission hearing testifies that the local area
telephone monopoly is able to maximize its revenue. For that reason the rate-hike
request should be denied.
Graphically illustrate each of the following effects on the market for home fitness
equipment with supply and demand curves. State the effects on price and quantity.
Consider each effect separately.
Health clubs begin to offer extras to make going to health clubs easier, such as free
parking and baby-sitting to encourage family memberships.
The table below represents cost data for Amalgamated Plastics Inc., which sells bubble
wrap for shipping in a perfectly competitive market for a price of $6 per package:
How many units of the output will this firm produce? How much profit will it earn?
Will the firm choose to operate in the long run? Explain.
In an effort to clean up the amount of sulfates introduced into the atmosphere the
government has ruled that all polluters install smoke stack scrubbers on their smoke
stacks and mandated a pollution limit on the amount of sulfates per parts of air that may
be legally emitted into the atmosphere. Suppose some of the polluters have found a
more efficient way to eliminate the pollution. How will this discovery change the
amount of sulfates emitted into the atmosphere?
Is the developing world moving toward centralized planning or free markets? Justify
your answer.
What three decisions do firms make simultaneously?
Why might an increase in the minimum wage cause more unemployment among those
with the least education, job experience and maturity?
Explain the economic concept of opportunity cost.
What is property income?
List and describe three different input markets.
What two things does the amount of property income a household earns depend upon?
Describe how the market demand curve for private goods is developed. Describe how
the societal demand curve for public goods is developed. Explain why each curve is
developed the way it is.