The biggest single transfer program at the federal level is Social Security.
The total of consumer plus producer surplus is at a minimum at the market equilibrium.
Disaggregating the distribution of income by race shows that the mean household
income for the top 20% of African-American households was very similar to that of the
top 20% of Hispanic households.
At the optimal level of public goods provision, society’s total willingness to pay per unit
is equal to the marginal cost of producing the good.
A technological change would cause movement along the demand curve for inputs.
Clean air is an example of a public good.
An increase in the wage rate of diamond cutters will increase the supply of cut
diamonds.
Advertising’s proponents say it functions basically to assist consumers to make
informed, rational choices.
For a perfectly competitive firm, when P = MC = ATC, the most profit the firm can earn
is zero.
Complements and substitutes exist for outputs, but not for inputs.
Taxes, tradable pollution permits, and direct regulation of pollution are all
government-involved approaches to dealing with pollution.
Well-being is measured by utility.
There are many firms selling differentiated products in a monopolistically competitive
industry.
A simultaneous increase in both the supply of and the demand for vitamin water would
cause an increase in the equilibrium quantity of vitamin water.
Table 14.1
B’s Strategy
Refer to Table 14.1. Firm A does not have a dominant strategy.
The airline industry is an example of an oligopoly.
Policies designed to promote import substitution often encouraged labor-intensive
production methods, which encouraged the creation of jobs.
The Celler-Kefauver Act gave the Justice Department the authority to monitor and
enforce the merger provisions from the Clayton Act.
Ignoring income effects, an increase in the wage rate will cause a decrease in labor
supply.
Table 14.2
B’s Strategy
Refer to Table 14.2. Firm A’s dominant strategy is to not advertise.
How total revenue changes when a price changes can be predicted using price elasticity
of demand.
Air pollution is an example of a negative externality.
The income distribution has become more unequal in the United States over the last 30
years.
If french fries and ketchup are complements, then an increase in the price of french fries
will result in an increase in the demand for ketchup.
A market is considered efficient if profit opportunities remain continually available.
It is not clear if logrolling leads to efficient results.
A diagram of an individual’s utility from income will be a line with a decreasing slope if
the individual is risk loving.
Manufacturers produce only what the market is willing to pay for.
GDP growth leads development.
A technological advance in the production of MP3 players will cause the equilibrium
selling price to increase.
Figure 2.5
Refer to Figure 2.5. The marginal rate of transformation in moving from Point A to
Point B is
A) -2/3.
B) -1.5.
C) -3.
D) -30.
Compared to a perfectly competitive firm, the demand schedule of a monopolistically
competitive firm faces is
A) more price elastic.
B) less price elastic.
C) perfectly price elastic.
D) perfectly price inelastic.
A policy in which a government actively picks industries to support as a base for
economic development is known as
A) social policy.
B) first-choice policy.
C) preferential policy.
D) industrial policy.
You know that the school parking lot gets very congested about 8:30 a.m. To avoid this
congestion, you start arriving at school at 8:00 a.m. However many other students make
the same decision, and now the parking lot becomes very congested at 8:00 a.m. This is
an example of the
A) fallacy of composition.
B) ceteris paribus fallacy.
C) fallacy of division.
D) post hoc, ergo propter hoc fallacy.
Export promotion is the policy in which industrial production is oriented towards
A) foreign producers.
B) foreign consumers.
C) domestic consumers.
D) both A and B
The difference between the maximum a person is willing to pay and current market
price is known as
A) consumer surplus.
B) producer surplus.
C) market surplus.
D) nonprice surplus.
Figure 15.4
Refer to Figure 15.4. Assume the No-Sweat Sweatshirt Manufacturing Company has
fixed costs of $150 and is a monopolistically competitive firm. If the firm produces the
profit-maximizing level of output and sells it at the profit-maximizing price, the firm
________ of $100.
A) earns a profit
B) has an average variable cost
C) suffers a loss
D) has a marginal cost
Figure 7.1
Refer to Figure 7.1. A corn producer produces 80 bushels of corn and sells each bushel
at $5. The cost of producing each unit bushel is $2. This corn producer’s total revenue is
________ and profit if ________.
A) $160; $0
B) $240; $80
C) $400; $240
D) $400; $160
Assume that automobiles are a normal good. An increase in income will
A) shift the marginal revenue product curve of auto workers to the left.
B) move a firm down the marginal revenue product curve of auto workers.
C) shift the marginal revenue product curve of auto workers to the right.
D) have no effect on the marginal revenue product curve of auto workers.
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
In figure 4.6 if price is P1, the deadweight loss due to under production is area
A) A+C.
B) C+F
C) E+G.
D) F+G.
Total variable costs
A) initially increase as output increases, and then decrease.
B) always decrease with output.
C) always increase with output.
D) initially decrease and then increase with output.
You own a car dealership and pay all of your sales people a flat salary. As a result, they
don’t work very hard to generate sales. This is an example of ________.
A) adverse selection
B) moral hazard
C) logrolling
D) an externality
If the demand for green tea increases as income increases, green tea is a(n)
A) complementary good.
B) substitute good.
C) normal good.
D) inferior good.
Figure 15.2
Refer to Figure 15.2. If We Do Hair maximizes profits as a monopolistically
competitive firm, its ________ is $960.
A) profit
B) loss
C) total cost
D) total revenue
Vertical equity holds that
A) those with equal ability to pay should bear equal tax burdens.
B) those who benefit the most from governmental services should bear the higher tax
burden.
C) those with greater ability to pay should pay more.
D) those with equal ability to pay should bear unequal tax burdens.
In response to news reports that taking aspirin daily can reduce an individual’s risk of a
heart attack, there will most likely be a(n)
A) increase in the supply of aspirin.
B) decrease in the supply of aspirin.
C) increase in the demand for aspirin.
D) increase in the quantity demanded of aspirin.
Figure 4.1
Refer to Figure 4.1. The United States will import 2 million apples per day if a
per-apple tax of ________ is levied on imported apples.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents
The optimal production method
A) maximizes output regardless of cost.
B) maximizes inputs.
C) minimizes cost.
D) minimizes the normal rate of return.
Figure 3.19
Refer to Figure 3.19. When the economy moves from Point C to Point E, there has been
A) a decrease in supply and a decrease in quantity demanded.
B) a decrease in quantity supplied and a decrease in demand.
C) an increase in supply and an increase in quantity demanded.
D) an increase in demand and an increase in quantity supplied.
If the price ceiling is set above the equilibrium price,
A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) demand will be less than supply.
The opportunity cost of investment in capital is forgone present consumption because
A) capital takes a long time to produce.
B) capital increases the productivity of labor.
C) resources are scarce.
D) capital is an intangible good.
Suppose that a hurricane destroys part of the tobacco crop in North Carolina. What will
happen to the price of tobacco? What will happen to the marginal product of tobacco
field workers as a result of the hurricane? Can we tell what will happen to the demand
for tobacco field workers? Explain.
Total revenue increases if price ________ and demand is ________.
A) falls; inelastic
B) falls; elastic
C) rises; elastic
D) rises; unit elastic
When the government taxes a firm that generates external costs, the firm will produce
A) more units of output than before the tax was imposed in order to continue
maximizing profits.
B) the same number of units of output as before the tax was imposed to continue
maximizing profits.
C) fewer units of output than before the tax was imposed in order to continue
maximizing profits.
D) either more or fewer units of output than before the tax was imposed depending
upon what happens to the profit maximizing level of output.
A condition in which no change is possible that will make some members of society
better off without making some other members of society worse off is called
A) Pareto optimality.
B) partial equilibrium.
C) general equilibrium.
D) market failure.
For a non-discriminating monopolist to sell one more unit, it must ________.
A) raise the price of only the last unit produced
B) lower the price of only the last unit produced
C) raise the price of the last as well as all previous units produced
D) lower the price of the last as well as all previous units produced
Figure 13.3
Refer to Figure 13.3. This firm’s total revenue will be maximized at a price of
A) $8.
B) $6.
C) $5.
D) $4.
If the most someone is willing to pay for an airline ticket to Las Vegas is $300 and the
market price of the ticket is $200, then this buyer will get consumer surplus of
A) $100.
B) $200.
C) $300.
D) $500.
That which we forgo, or give up, when we make a choice or decision is called
A) out-of-pocket cost.
B) marginal cost.
C) real cost.
D) opportunity cost.
For production to be at the efficient level of output, marginal ________ must equal
________.
A) damage cost; zero
B) benefit; marginal private cost
C) social cost; zero
D) benefit; marginal social cost
You own and are the only employee of a company that sets odds for sporting events.
Last year your total revenue was $60,000. Your costs for rent and supplies were
$50,000. To start this business you invested an amount of your own capital that could
pay you a $20,000 a year return.
Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $10,000.
D) $30,000.
The second-largest cash transfer program(s) in the United States, smaller than only the
Social Security system, is(are) the
A) unemployment insurance program.
B) public assistance (welfare) program.
C) Medicare and Medicaid programs.
D) Supplemental Security Income program.
Capital income includes all of the following EXCEPT
A) rents.
B) interest.
C) profit.
D) salary.
A clothing manufacturing company adopts a new technology that, ceteris paribus,
increases the productivity of labor. At the same time, capital becomes more scarce.
Assume that for this firm capital and labor are substitutable. Which of the following is
most likely to occur?
A) Capital will be substituted for labor.
B) Labor will be substituted for capital.
C) Output increases as do the prices of capital and labor.
D) Output decreases as does the price of clothing.
If the marginal cost curve is below the average variable cost curve, then
A) average variable cost is increasing.
B) average variable cost is decreasing.
C) average variable cost is constant.
D) marginal cost is increasing.
Assume that a very unusual production process involves increasing marginal
productivity that appears to have no end. What would the total productivity function
look like? Comment on the likelihood of such a function in the real world.
Table 8.5
Referring to Table 8.5 create a sixth column for total revenue and explain how you
calculated it.
What is an indifference curve?
The demand, marginal cost, and marginal revenue curves for Jay’s Company are shown
below. Jay has decided that his firm should produce 40 units per day. Is this the
profit-maximizing level of output? Explain.
Use the Cartesian coordinate system (and putting income on the horizontal axis) to plot
the following data:
The profit-maximizing rule for a perfectly competitive firm when choosing its level of
output is to produce where price is equal to marginal cost. The profit-maximizing rule
for a firm hiring labor in a perfectly competitive labor market is to hire workers up to
the point where the marginal revenue product equal to the market wage. How are these
two rules related to one another?
Explain the four assumptions on which the theory of consumer choice is based. Select
one of these assumptions and explain what would happen if this assumption did not
hold true.
What does elasticity measure?
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.
Assume a firm is operating under conditions of pure competition and faces a marginal
cost function that is everywhere below its average total cost. If the firm is producing
where marginal revenue equals marginal cost will it be possible for it to make an
economic profit? Explain.
What is public choice theory?
Draw a graph illustrating the concept of diminishing marginal utility of income and
explain what is happening along the curve.
Comment on the following statement: “Diminishing marginal utility means that total
utility falls when an additional unit of a good is consumed.”
The graphs below show the market for widgets and the cost curves of a representative
firm in the widget industry. The widget market is currently in long-run competitive
equilibrium. On the graphs below, show the long-run effects of a decrease in the cost of
producing widgets. Explain your answer.
Assume that the government of the state of New Jersey has determined that a large
number of injuries and deaths have occurred as a result of accidents involving the
installation and repairs of electrical equipment at private residences. In reaction to this
problem the state assembly decided to pass a law which made a requirement that all
certified electricians take and pass a tougher state licensing examination. Analyze the
impact that this law is likely to have on the market for electricians and explain why
safety may not necessarily improve.