Which of the following is likely to occur as the result of the law of diminishing
marginal utility?
A) Petra’s utility from her second apple was less than her satisfaction from her first
orange.
B) Hudson enjoyed his second slice of pizza more than his first.
C) Sabine’s utility from her first granola bar is greater than Rachel’s utility from her
second granola bar.
D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things
constant.
Figure 13-16
Refer to Figure 13-16. Figure 13-16 depicts a monopolistically competitive barber
shop. Use the diagram to answer the following questions.
a. Suppose the average variable cost of production is $15 when output equals 110
haircuts and $15.25 when output equals 140 haircuts. If the firm wants to maximize its
profit or minimize its losses, how many haircuts will it produce and what price should it
charge? Explain your answer.
b. Calculate the firm’s profit or loss.
c. What is likely to happen in this industry over time as it moves to its new long-run
equilibrium?
d. Suppose the barber shop depicted in the diagram remains in the industry. Is this
barber shop likely to produce this same quantity of haircuts as in part (a) in the long
run?
If a brewery wants to raise funds to purchase a new fermenting vat, it does so in the
A) factor market.
B) output market.
C) product market.
D) alcoholic beverages market.
Ali’s Gyros operates near a college campus. Ali has been selling 120 gyros a day at
$4.50 each and is considering a price cut. He estimates that he would be able to sell 200
gyros per day at $3.50 each.
a. Calculate the price elasticity of demand using the midpoint formula.
b. Calculate the change in revenue as a result of the price cut.
A positive externality results when
A) economists are sure that a good or service provides benefits to consumers.
B) someone pays for a good or service even though she is not directly affected by the
production or consumption of it.
C) people who live in one country benefit from the production of a good or service that
occurs in another country.
D) people who are not directly involved in producing or paying for a good or service
benefit from it.
Consider the following pairs of items:
a. shampoo and conditioner
b. iPhones and earbuds
c. a laptop computer and a desktop computer
d. beef and pork
e. air-travel and weed killer
Which of the pairs listed will have a positive cross-price elasticity?
A) a and b only
B) c and d only
C) e only
D) a, b, and c only
Which antitrust law prohibited firms from buying stock in competitors and from having
directors serve on the boards of competing firms?
A) the Clayton Act
B) the Securities and Exchange Act
C) the Sherman Act
D) the Robinson-Patman Act
Figure 4-5
Figure 4-5 shows the market for apartments in Springfield. Recently, the government
imposed a rent ceiling of $1,000 per month.
Refer to Figure 4-5. Suppose that instead of a rent ceiling, the government imposed a
price floor of $2,000 per month for apartments. What is the value of the deadweight
loss after the imposition of the price floor?
A) $50,000
B) $125,000
C) $175,000
D) $260,000
If total utility increases at a decreasing rate as a consumer consumes more coffee, then
marginal utility must
A) remains constant.
B) increase also.
C) decrease.
D) be negative.
In the circular flow model, producers
A) sell goods and services in the input market.
B) and households spend earnings from resource sales on goods and services in the
factor market.
C) hire resources sold by households in the factor market.
D) spend earnings from resource sales on goods and services in the product market.
In the United States, government policies with respect to monopolies and collusion are
embodied in
A) the U.S. Constitution.
B) common law, which the United States adopted from English law.
C) the Supreme Court.
D) antitrust laws.
All of the following are examples of oligopolistic markets except
A) the broadcasting industry
B) aircraft manufacture
C) college bookstores
D) seafood restaurant chains
Price elasticity of supply is used to gauge
A) how responsive suppliers are to price changes.
B) how responsive suppliers are to changes in future prices.
C) how responsive suppliers are to a change in demand.
D) how responsive sales are to a change in input prices.
Francis Crawford recently received a 20 percent wage increase and desires to work less.
We can conclude that at his current wage his supply of labor curve
A) has a positive slope.
B) has a negative slope.
C) is U-shaped.
D) is vertical.
When deciding on which new products to develop, a firm must devote people, time, and
money to designing a new product. Because any firm has only limited resources, it
A) should wait until its competitors develop a similar product before deciding on
devoting resources to its own product development.
B) is not able to develop more than one new product at a time.
C) must be certain that the product it chooses to develop will be successful or it will not
be able to stay in business.
D) faces a trade-off, because resources used to develop one product will not be
available to develop another product.
The present value of $475 received 3 years in the future would be calculated as which
of the following when the interest rate is 6 percent?
A) 475/(1.6)3
B) 475/(1.06)3
C) 475 × 1.6 × 3
D) 06/475
Which of the following is an example of spending on factors of production in the
circular flow model?
A) Carolina has her nails done before her 20th high school class reunion.
B) Giorgio buys snow cones for his youth soccer team after each game.
C) Stevie trades in his old cell phone for a newer model.
D) Arlisha purchases a cotton candy machine for her concession stand at the state fair.
During its run on Broadway, the play The Producers regularly sold out all available
tickets at the St. James Theater. The theater could have raised ticket prices from $75 to
$125 and still sold all available tickets but chose not to do so. The best explanation for
this decision is
A) theater owners are unaware of the elasticity of demand for Broadway shows.
B) theater owners do not want to raise their prices on weekends, when demand is high,
and then have to lower prices during the week, when demand is lower.
C) firms sometimes give up profits in the short run to keep their customers happy and
increase their profits in the long run.
D) theater owners are not motivated to maximize their profits.
Willingness to pay measures
A) the maximum price a buyer is willing to pay for a product minus the amount the
buyer actually pays for it.
B) the amount a seller actually receives for a good minus the minimum amount the
seller is willing to accept for the good.
C) the maximum price that a buyer is willing to pay for a good.
D) the maximum price a buyer is willing to pay minus the minimum price a seller is
willing to accept.
DeShawn’s Detailing is a service that details cars at the customers’ homes or places of
work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this
service. For a total price of $90, DeShawn will also detail the car’s engine, a service that
adds an additional $20 to the total cost of the package. What is DeShawn’s marginal
benefit if he sells a basic detailing package?
A) $35
B) $75
C) He makes a marginal loss of $15, not a marginal benefit.
D) The marginal benefit cannot be determined.
Dividends are
A) financial securities which represent ownership in a corporation.
B) the yearly payments associated with bonds.
C) the interest rate paid on shares of stock.
D) payments by a corporation to its shareholders.
Figure 15-3
Figure 15-3 above shows the demand and cost curves facing a monopolist.
Refer to Figure 15-3. What happens to the monopolist represented in the diagram in the
long run?
A) It will raise its price at least until it breaks even.
B) If the cost and demand curves remain the same, it will exit the market.
C) The government will subsidize the monopoly to enable it to break even.
D) It will be forced out of business by more efficient producers.
Which of the following is most likely to exert the bargaining power of a buyer?
A) Barnes and Noble purchases books from publishers for sale in its online stores.
B) Walmart, the world’s largest discount store, seeks vendors to supply products made
exclusively for its stores.
C) Ground beef producers seek to purchase cattle from ranchers.
D) Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk
supplies.
Profit is the difference between
A) marginal revenue and marginal cost.
B) total revenue and variable cost.
C) total revenue and total explicit cost.
D) total revenue and total cost.
Suppose the demand curve for a product is horizontal and the supply curve is upward
sloping. If a unit tax is imposed in the market for this product
A) sellers bear the entire burden of the tax.
B) the tax burden will be shared among the government, buyers, and sellers.
C) buyers bear the entire burden of the tax.
D) the tax burden will be shared by buyers and sellers.
In the past the federal government often employed what is called a
“command-and-control” approach to the reduction of pollution emissions. Many
economists are critical of this approach because
A) it does not lead to significant reductions in pollution.
B) they believe a market-based approach will reduce pollution more efficiently.
C) the “command-and-control” approach is designed to help firms at the expense of
consumers.
D) the “command-and-control” approach leads to negative externalities.
If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of
$60, zero units are sold. Based on this information, the demand for his cell-phone
covers is
A) elastic or perfectly inelastic.
B) elastic or perfectly elastic.
C) unit elastic.
D) perfectly inelastic.
Which of the following statements about the economic decisions consumers, firms, and
the government have to make is false?
A) Governments face the problem of scarcity in making economic decisions.
B) Only individuals face scarcity; firms and the government do not.
C) Both firms and individuals face scarcity.
D) Each faces the problem of scarcity which necessitates trade-offs in making economic
decisions.
Figure 5-6
Figure 5-6 shows the market for measles vaccinations, a product whose use generates
positive externalities.
Refer to Figure 5-6. What does D1 represent?
A) the demand curve reflecting social benefits
B) the positive externalities curve
C) the demand curve reflecting private benefits
D) the social welfare curve
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 the deadweight loss at a price of $18?
A) $100
B) $180
C) $660
D) $1,040