In making an “either”or” decision:
A) choose the activity that results in the greater economic profit.
B) choose the activity that results in the greater accounting profit.
C) continue in an activity as long as the marginal cost is greater than the marginal
benefit.
D) continue in an activity as long as the marginal cost is less than the marginal benefit.
Figure: Monopolistic Competition II
(Figure: Monopolistic Competition II) Which panel(s) in the figure Monopolistic
Competition II show(s) a monopolistic competitor in long-run equilibrium?
A) panel (a)
B) panel (b)
C) panel (c)
D) panels (a), (b), and (c)
Figure: The Demand for Shirts
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand for the segment EF, by the midpoint method, is:
A) 1.3.
B) 1.
C) 0.7.
D) 0.33.
In the circular-flow diagram firms buy _____ in the _____ market.
A) goods and services; product
B) goods and services; factor
C) resources; product
D) resources; factor
Figure: Shifts in Demand and Supply
(Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose the population increases. Which panel BEST describes how this will affect the
market for apples?
A) panel A
B) panel B
C) panel C
D) panel D
Suppose a monopolistically competitive firm can increase its profits by decreasing its
output. At the current output:
A) marginal revenue is less than zero.
B) price is less than marginal revenue.
C) marginal revenue is less than marginal cost.
D) price is less than average total cost.
When Lloyd’s of London offered to provide insurance to merchant ships in the
eighteenth century, Lloyd’s was:
A) exhibiting risk-averse behavior.
B) less sensitive to risk than those who requested insurance.
C) attempting to decrease its exposure to risk.
D) not very rational in its behavior.
Suppose the federal government determines the total level of municipal sewage that can
be discharged by cities along a river. If the cities are able to buy and sell rights to the
total discharge level among themselves, then the government’s environmental policy
includes:
A) emissions taxes.
B) regulations.
C) tradable pollution permits.
D) command and control.
A monopolist _____ than a perfectly competitive industry.
A) produces a larger quantity
B) charges a higher price
C) charges a lower price
D) earns less profit in the long run
Figure: Producer Surplus
(Figure: Producer Surplus) Look at the figure Producer Surplus. When the price rises
from $25 to $35, producer surplus _____ for a total producer surplus of _____.
A) increases by $10; $30
B) decreases by $10; $30
C) increases by $30; $60
D) decreases by $35; $100
(Table: Competitive Market for Good Z) Look at the table Competitive Market for
Good Z. If the price of good Z is $15, there will be:
A) excess demand of 25 units.
B) excess supply of 25 units.
C) a shortage of 20 units.
D) a surplus of 45 units.
Suppose the marginal cost curve in the short run first decreases and then increases. If
marginal cost is decreasing, _____ must be _____ and _____ must be _____.
A) marginal product; increasing; average fixed cost; decreasing
B) average variable cost; decreasing; average fixed cost; increasing
C) average total cost; increasing; marginal cost; decreasing
D) marginal product; increasing; average variable cost; decreasing
Figure: Kristin’s Budget Line
(Figure: Kristin’s Budget Line) Look at the figure Kristin’s Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3
each and the price of cappuccino remains unchanged. As a result of this price change,
Kristin’s optimal consumption bundle is now 9 cups of cappuccino and 11 apples. If
Kristin’s income could be adjusted so that she could maintain her initial level of utility
after the price change, she would consume more cappuccino and more apples. This
reflects:
A) a substitution effect from the price change and an income effect from the income
change.
B) the substitution effect alone.
C) the income effect alone.
D) neither a substitution nor an income effect.
Because monopolistically competitive firms charge a price that is greater than marginal
cost:
A) monopolistic competition is efficient.
B) monopolistic competition is inefficient.
C) the marginal benefit to society of an additional unit of output is below its cost.
D) monopolistic competition is inefficient and the marginal benefit to society of an
additional unit of output is below its cost.
If potatoes are an inferior good and the price of potatoes decreases, the _____ effect
will cause a(n) _____ in the consumption of potatoes.
A) substitution; decrease
B) income; increase
C) income; decrease
D) substitution effect and the income; decrease
The _____ demand curve for a firm operating in a monopolistically competitive market
_____ facing a perfectly competitive firm.
A) downward-sloping; is the same as the demand curve
B) downward-sloping; differs from the horizontal demand curve
C) horizontal; differs from the downward-sloping demand curve
D) horizontal; is the same as the demand curve
Suppose the government decides to help poor families with kids by subsidizing the
purchase of milk. The subsidy takes the form of a 50% discount on the price of milk.
Suppose also that poor families buy only milk and soda, which are substitutes, although
not perfect substitutes. What happens to the amount of milk poor families buy?
A) It increases.
B) It decreases.
C) It stays the same.
D) It depends on the shape of the family’s indifference curve.
Figure: The Value of the Marginal Product Curve
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if the price of the good increases and everything else stays the
same, then the profit-maximizing quantity of labor:
A) will increase.
B) will decrease.
C) will stay the same.
D) cannot be determined.
(Table: Externalities from Parks) The table shows the marginal social benefit and the
marginal social cost of preserving various amounts of land in a city for a public park.
Without government intervention, at the amount of land dedicated to the public park the
marginal social cost will be:
A) $225.
B) $150.
C) $100.
D) $0.
Figure: The Marginal Decision Rule
(Figure: Marginal Decision Rule) Look at the figure The Marginal Decision Rule.
Given the market price P1, B is the _____ curve.
A) marginal revenue
B) marginal cost
C) marginal product
D) average fixed cost
(Table: Competitive Market for Good Z) Look at the table Competitive Market for
Good Z. The equilibrium price and quantity in this market are, respectively:
A) $5 and 40 units.
B) $20 and 60 units.
C) $10 and 30 units.
D) $15 and 20 units.
An economy that has the lowest opportunity cost of producing a particular good is said
to have:
A) an absolute advantage in production of that good.
B) a comparative advantage in production of that good.
C) a production possibility frontier.
D) an increasing opportunity cost in production of that good.
If firms are making positive economic profits in the short run, then in the long run:
A) the short-run industry supply curve will shift leftward.
B) firms will enter the industry.
C) industry output will rise and the price will rise.
D) firms will leave the industry.
A price ceiling is:
A) a maximum price sellers are allowed to charge for a good or service.
B) the difference between the quantity supplied and quantity demanded.
C) a minimum price buyers are required to pay for a good or service.
D) the deadweight loss caused by an inefficiently low quantity.
Figure: The Market for Hybrid Cars
(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars.
What area represents deadweight loss if there is a binding price floor at P1?
A) a + b + c
B) b + c + d + e
C) c + e
D) c
Suppose the United States removes the sugar quotas and the market price of sugar
drops. Since sugar is an input in candy, in the candy bar market, we would expect
consumer surplus to:
A) increase.
B) decrease.
C) not change.
D) Consumer surplus cannot be determined without information about the supply curve.
(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a
Perfectly Competitive Firm. In the short run, the firm will produce, but at a loss, if the
price is:
A) $2.00.
B) $2.50.
C) $3.50.
D) $4.50.
Figure: Game-Day Shirts
(Figure: Game-Day Shirts) Rick is one of 10 vendors who sell game-day T-shirts at
football games in a perfectly competitive market. His costs are identical to the costs of
the other 9 vendors. When the industry is in long-run equilibrium, the price of each shirt
will be _____, and the total quantity supplied will be _____.
A) $6; 0
B) $9; 200
C) $11; 220
D) $14; 240
Figure: Consumer Equilibrium IV
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point G. Given the budget
constraint FL, utility can be increased by moving to point:
A) H.
B) I.
C) J.
D) K.
General Snacks is a typical firm in monopolistic competition. Initially, the market is in
long-run equilibrium, and then there is an increase in the market demand for snacks. In
the long run, the economic profits of typical firms in the industry will be:
A) typical of those earned by monopoly firms.
B) positive but less than the level typically earned by monopoly firms.
C) zero.
D) negative.
A country that is relatively labor-abundant and relatively land-scarce opens to
international trade. As a result, it finds that wages _____ and rents _____.
A) increase; decrease
B) decrease; decrease
C) decrease; increase
D) increase; increase
Suppose Oklahoma decides to produce only two goods, oil and football helmets. If
Oklahoma is producing on its production possibility frontier, as oil production
increases, the production of football helmets will:
A) increase.
B) not change.
C) decrease at a decreasing rate.
D) decrease.
Economies and diseconomies of scale are associated with the:
A) long-run average total cost curve and the long run.
B) short-run average total cost curve and the short run.
C) marginal cost curve and both the long and short run.
D) average fixed cost curve and the short run.