Favored customers receive special treatment from dealers during periods of excess
demand.
A decrease in demand for a product will cause the price of the product to rise and
supply of the product to increase.
Table 14.2
B’s Strategy
Refer to Table 14.2. Firm A’s dominant strategy is to not advertise.
In the presence of externalities and public goods, we get closer to the efficient
allocation of resources through government intervention than by leaving everything to
the market.
The value of land is determined in part by what firms and households are willing to pay
for it.
A demand curve with constant slope over all quantity values can have a continuously
changing price elasticity of demand.
An indifference curve is a set of points, each point representing a combination of two
goods, all of which represent the same marginal utility.
The upward sloping portion of the perfectly competitive firm’s average total cost curve
is the firm’s short run supply curve.
If marginal cost is increasing, then average total cost must be increasing simultaneously.
In any case where there is a negative externality, it is better to form a government
agency to solve the problem.
Marginal cost is total variable cost divided by output.
Dumping involves to a country selling its exports at a price lower than its cost of
production.
Benefits of investments are generally certain, but costs are harder to quantify and
involve greater uncertainty.
When demand is unit elastic, an increase in price will result in an increase in total
revenue.
In economics, the fact that the behavior of one firm is independent of the behavior of
other firms is the main thing that differentiates oligopoly markets from the other three
market structure types (perfect competition, monopoly, and monopolistic competition).
The value of the best alternative foregone is the marginal cost of making a decision.
For the purpose of defining economic income, capital gains count as income only when
they are realized.
According to the World Bank, in 2006 the largest population group (2.4 billion people)
belonged to countries classified as upper middle-income.
When demand is unit elastic, a decrease in price will result in a decrease in total
revenue.
Firms maximize their profits by producing the output level where MR = MC.
A production function shows the greatest amount that a firm will produce given the
amount of labor input.
Not all points along a utility possibilities frontier are efficient and equally desirable.
Capital stock is the current market value of all outstanding shares of stock issued by a
company.
Opportunity costs arise due to scarce resources.
Imperfect competition results in inefficiency and less equity than perfect competition.
All transfer payments are made to people with low incomes.
Opportunity cost refers to the incremental cost arising from a decision.
The total revenue curve for a perfectly competitive firm will be a straight line with
positive slope.
The biggest single transfer program at the federal level is the welfare program.
Taxes, tradable pollution permits, and direct regulation of pollution are all market
approaches to dealing with pollution.
The slope of a straight line is not constant unless the line is vertical or horizontal.
Input demand is derived demand in the sense that it is dependent upon the productivity
of the input.
Normative economics looks at outcomes of economic behavior and evaluates them as
good or bad.
Human capital is a combination of inborn and acquired skills, talent, and knowledge.
Developing countries are characterized by low population growth rates.
Subsidies can be used to internalize positive externalities.
If MUx/Px exceeds MUy/Py, then a household can increase its utility by spending more
on Y and less on X.
The table shows the relationship between income and utility for Celeste.
Table 17.1
Refer to Table 17.1. Suppose Celeste has a 1/3 chance of becoming disabled in any
given year. If she does become disabled, she will earn $0. If Celeste does not become
disabled, she will earn her usual salary of $120,000. Celeste has the opportunity to
purchase disability insurance for $40,000 which will pay her her full salary in the event
she becomes disabled. Celeste’s utility with the policy is
A) 90 and her expected utility without the policy is 80.
B) 90 and her expected utility without the policy is 90.
C) 120 and her expected utility without the policy is 80.
D) 40 and her expected utility without the policy is 90.
Suppose that a town has two major hospitals. One of these hospitals is unionized and
the union has just negotiated a 10% wage increase each year for the next three years.
Which of the following is most likely to occur?
A) The price of labor in the unionized hospital will increase, but there will be no
changes in the price of labor in the nonunionized hospital.
B) The price of labor will change in both the union and nonunion hospitals, but no other
input markets will be affected.
C) The price of labor will change in both the unionized and nonunionized hospitals.
Employment of labor and other inputs is also likely to change in both hospitals.
D) The only effect will be that the price charged by the unionized hospital will increase
to cover the additional costs of labor.
If your tuition is $20,000 this semester, your books cost $2,000, you can only work 10
rather than 40 hours per week during the 15 weeks you are taking classes and you make
$15 per hour, and your room and board is $8,000 this semester (same as if not attending
college), then your opportunity cost of attending college this semester is
A) $22,000.
B) $22,150.
C) $28,750.
D) $36,750.
The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for
producing 200 muffins are $350. The Cakery Bakery’s economic profits are
A) $35.
B) $50.
C) $400.
D) indeterminate from this information.
According to Karl Marx, property income is
A) the primary source of inequality in the income distribution.
B) a legitimate payment to entrepreneurs for risk taking.
C) the determinant of the value of all products.
D) the difference between what a worker is paid and the value of what a worker
produces.
Figure 3.15
Refer to Figure 3.15. A decrease in the price of mushrooms (an input for gardenburgers)
will cause a movement from Point B on supply curve S2 to
A) supply curve S3.
B) supply curve S1.
C) Point A on supply curve S2.
D) Point C on supply curve S2.
If the income effect of a wage change outweighs the substitution effect of a wage
change, the labor-supply curve is
A) upward sloping.
B) horizontal.
C) vertical.
D) backward bending.
________ is (are) estimated at approximately $100 billion per year.
A) Remittances sent from developed countries to less developed countries
B) Capital flight from the United States
C) Social overhead capital in the United States
D) The value of brain drain flowing into the United States
Figure 8.6
Refer to Figure 8.6. Curve ________ is Outdoor Equipment’s average variable cost
curve.
A) 1
B) 2
C) 3
D) None of the above is correct.
Table 7.3
Refer to the table above. Suppose output varies, ceteris paribus, with labor input in the
following manner displayed above. After how many units of labor do diminishing
returns set in?
A) 3
B) 4
C) 5
D) They do not set in.
Most of Karl Marx’s writings are about
A) communism.
B) socialism.
C) capitalism.
D) efficiency.
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume
that each firm emits 5 units of pollution.
Table 16.3
Refer to Table 16.3. Suppose the government wants to reduce the total amount of
pollution from the current level of 10 to 4. To do this, the government caps each firm’s
emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade
permits, what is the total cost of the pollution reduction?
A) $0
B) $60
C) $104
D) 110
At the Larson Bakery the marginal products of the first, second, and third sales clerks
are 30, 27, and 21 customers served, respectively. The total product (number of
customers served) of the first two sales clerks is
A) 6.
B) 17.
C) 57.
D) 78.
The market in which households supply their savings to firms that demand funds in
order to buy capital goods is the ________ market.
A) money
B) savings
C) investment
D) capital
Figure 8.8
Refer to Figure 8.8. A soybean farmer’s profit-maximizing level of output is ________
units of output.
A) 200
B) 700
C) 1,000
D) 1,400
With ________, outcomes of specific interventions are determined by using the
intervention in a randomly selected subset of a sample and then comparing outcomes
from the exposed and control group.
A) natural experiments
B) random experiments
C) manipulated experiments
D) predetermined experiments
According to the Five Forces Model, ________ are the five competitive forces that
determine the level of competition and profitability in an industry.
A) rivals, buyers, suppliers, substitutes, and potential entrants
B) rivals, consumers, labor, weather, and government
C) buyers, suppliers, government, foreign competition, and weather
D) None of the above is correct.
When you use your own savings to start a business, you make a profit only after you
cover the ________ to start your business.
A) total amount of savings used
B) initial start-up costs
C) opportunity cost of using your savings
D) first-year’s total costs
Average fixed costs
A) are the costs associated with producing an additional unit of output.
B) provide a per unit measure of costs.
C) fall as output rises.
D) reach their minimum at the output level where the average fixed cost curve is
intersected by the marginal cost curve.
In the short run, firms earning a profit will want to ________ their profits while firms
suffering losses will want to ________ their losses.
A) maximize; maximize
B) maximize; minimize
C) minimize; maximize
D) minimize; minimize
Imperfect competition results in ________ market outcomes.
A) more efficient
B) less efficient
C) completely efficient
D) completely inefficient
If a firm’s production process generates external costs, the firm will produce the socially
efficient level of output if the government ________ the marginal damage cost.
A) imposes a tax equal to
B) issues a subsidy equal to
C) imposes a tax greater than
D) issues a subsidy greater than
Related to theEconomics in Practice on page 309: In the case of AT&T’s potential
merger with T-Mobile, the FCC and the DOJ ruled that
A) the case had no standing in a U.S. court since T-Mobile is a German company.
B) the merger could not proceed due to concerns over increased concentration on prices
in the wireless communications industry.
C) the merger would ultimately benefit the public and could therefore proceed.
D) AT&T was already too concentrated and therefore needed to be divided into several
smaller companies.
If marginal product is greater than average product, then
A) average product must be decreasing.
B) marginal product must be decreasing.
C) marginal product must be increasing.
D) marginal product could either be increasing or decreasing.
Table 3.1
Refer to Table 3.1. If the price per pizza is $9, the price will
A) remain constant because the market is in equilibrium.
B) increase because there is an excess demand in the market.
C) increase because there is an excess supply in the market.
D) decrease because there is an excess supply in the market.
Your roommate has the right to play her stereo during the day. But you find the best
time to study is during the day, and the stereo playing makes it hard for you to
concentrate. You tell your roommate that you will do her laundry every week if she
does not play the stereo during the day and she agrees to this. This is an example of the
A) free rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) fallacy of composition.
Most authorities agree that the transition to a market economy can be achieved
________ external financial assistance ________ technical assistance.
A) without; or
B) without; but with
C) only with; and
D) only with; and no
The ________ is the additional revenue a firm earns by employing one additional unit
of labor.
A) marginal revenue product of labor
B) marginal labor cost
C) average labor revenue
D) per-worker net profit
Figure 10.3
Refer to Figure 10.3. The market wage is initially W0 and the firm is initially at Point A.
Labor supply decreases from S0 to S1; after the firm is fully able to adjust all inputs, the
firm will hire ________ units of labor to maximize profits.
A) I0
B) I1
C) I2
D) I3
Rented DVDs and movies shown in theaters are substitutes. Rented DVDs and plasma
TVs are complements. Plasma TVs and movies shown in theaters are normal goods.
People watch rented DVDs more often in the winter than in the summer.
To raise additional revenues, the government imposes an entertainment tax on movie
tickets, but there are no new additional taxes levied on rented DVDs. This would lead to
A) an increase in the price of movie tickets, but no change in the rental price of DVDs.
B) an increase in the price of movie tickets and the rental price of DVDs.
C) an increase in the price of a movie ticket and a decrease in the rental price of DVDs.
D) no change in the price of a movie ticket and an increase in the rental price of DVDs.
Compared to traditional bank loans, microfinance loans have all of the following
characteristics EXCEPT
A) they are much smaller.
B) they require no collateral.
C) they are made more frequently to women than to men.
D) they have repayments that begin at a much later date.
How has the distribution of money income changed over time?
What is meant by the phrase “economic integration?”
What is a price ceiling?
What three things must a firm know in order to calculate costs?
Scenario 1
Suppose your professor grades you on ten examinations, all carrying equal weight for
the final grade in the course. Answer the following questions based on this information.
Refer to Scenario 1. If you start the course in such a way that each exam score is worse
than your previous average what should happen to your average score? What would
happen to your average if the next exam score was larger than your previous exam
score? Explain.
If the elasticity of demand were positive what would this imply about the shape of the
demand curve? Why is it that we are unlikely to find a price elasticity of demand with a
positive value?
What is the formula for calculating average fixed cost? If a firm has fixed costs of
$8,500 per month and produces 1,900 units of output per month, what is its average
fixed cost?
List two things that can cause the industry supply curve to shift.
Explain what is meant by perfect price discrimination.
What is rule of reason?
Segway Corporation has a monopoly on its personal transporter, which is a scooter that
carries one person. The company achieved its monopoly through the procurement of a
patent. In spite of this advantage it has yet to turn a profit. One major impediment for
the product is the existence of local ordinance around the country that prohibits the use
of motorized scooters on sidewalks where the Segway might otherwise provide great
utility to users. Where do you believe the demand curve is in relation to the average
total cost? What do you believe the company’s executives are banking on since they
continue to stay in business even in the face of losses?
What is the government’s major problem involved in reaching the optimal level of
provision for public goods?
The table below represents the demand for Morey’s Marbles which has a monopoly in
the sale of marbles. Calculate total revenue and marginal revenue for the levels of
output given.
What does it mean for a good to have a perfectly inelastic demand? Draw a demand
curve of this type. Explain why it has the shape that it does.
What can we say about the employment of resources if the economy is at a point inside
its production possibility frontier?
How do competitive firms try to achieve market power? What is one way they try to
accomplish this?
What evidence exists that industrial concentration increases the rate of technological
advance?
What is the profit-maximizing condition for a firm when trying to decide how much
land to use for production?