Ceteris paribus, when market interest rates ________, firms undertake ________
investment projects.
A) decrease; no
B) increase; more
C) decrease; less
D) increase; fewer
The marginal cost of producing 25 units of a public good is $100. There are two
individuals in the society. Person A is willing to pay $40 for 25 units of the public good.
If 25 units of the public good are provided, then Person B must be willing to pay
________.
A) $0
B) $40
C) $60
D) $75
If a donut shop runs a special and sells a dozen donuts for $3.00, Tarik buys a dozen
donuts each week. If donuts are not on special and the price is $6.00 per dozen, Tarik
buys no donuts each week. Which of the following is true?
A) Tarik’s demand for donuts is inelastic.
B) Tarik’s utility from a dozen donuts is less than $3.00.
C) The value of Tarik’s utility from a dozen donuts is at least $3.00 and less than $6.00.
D) Tarik’s utility from a dozen donuts is greater than $6.00.
Which of the following demonstrates an act of production, as economists use the term?
A) A worker places money in a pension fund.
B) A local nonprofessional theater company performs a play.
C) An individual buys municipal bonds to avoid taxes.
D) all of the above
India is on the World Bank’s list of ________ countries and its capital city is one of the
top ten centers of commerce in the world.
A) low-income
B) lower middle-income
C) upper middle-income
D) high-income
The process of developing local industries to manufacture goods to replace imports is
known as
A) export promotion.
B) import substitution.
C) export favoritism.
D) import promotion.
Table 9.2
Refer to Table 9.2. If the market price is $34 and the firm produces 4 units of output,
then its profit would be
A) -$100.
B) -$88.
C) $0.
D) $36.
Sierra likes spinach and artichoke dip. After eating spinach and artichoke dip with 6
crackers, she switches to salami with crackers. We can conclude that
A) the spinach and artichoke dip cannot have tasted that good.
B) the spinach and artichoke dip with crackers now has a marginal utility of zero.
C) at this point salami and crackers have a higher marginal utility per dollar spent than
that of spinach and artichoke dip with crackers.
D) Sierra is no longer maximizing her utility.
The closest example of a perfectly competitive market is
A) fast foods.
B) beer.
C) gasoline stations.
D) soybeans.
Explain how each of the following limits the economic growth of developing nations:
(a) Insufficient capital formation
(b) A shortage of human resources
(c) A lack of social overhead capital
Related to the Economics in Practice on page 109: Which of the following best explains
why demand is often more elastic in the long run than it is in the short run?
A) When demand is elastic, price increases reduce revenue because a small price
increase will lead to a large decrease in quantity demanded.
B) In the long run, consumers have greater access to substitutes.
C) Consumers tend to postpone making purchasing decisions as long as possible.
D) In the short run, prices can change rapidly, but in the long run they are more stable.
Figure 13.1
Refer to Figure 13.1. The demand curve for insulin is most likely represented by
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
Assume the total product of two workers is 100 and the total product of three workers is
120. The average product of three workers is ________, and the marginal product of the
third worker is ________.
A) 40; 20
B) 20; 100
C) 33; 6.67
D) 120; 100
Table 16.1
Refer to Table 16.1. To force this salt processing firm to produce the efficient level of
output, the government should impose a tax
A) of $10 per ton.
B) of $12.50 per ton.
C) of $40 per ton.
D) that depends on the level of output that the firm produces to maximize profits.
As more of a good, such as television sets, is produced, the opportunity costs of
producing it increases. This most likely occurs because
A) as more of a good is produced, the inputs used to produce that good will increase in
price.
B) consumers would be willing to pay higher prices for the good as more of the good is
produced.
C) resources are not equally well suited to producing all goods, and as more of a good
is produced, it is necessary to use resources less well suited to the production of that
good.
D) as more of a good is produced, the quality of that good declines, and therefore the
costs of production increase.
Related to the Economics in Practice on page 719: In areas of Bangladesh where the
government has invested in building flood embankments,
A) marriages between cousins has fallen.
B) marriages between cousins has risen.
C) marriages to people from distant villages has fallen.
D) marriage rates in general have risen.
Suppose we know that a monopolist is maximizing its profits. Which of the following is
a correct inference? The monopolist has
A) maximized its total revenue.
B) set price equal to its average cost.
C) maximized the difference between marginal revenue and marginal cost.
D) equated marginal revenue and marginal cost.
If a household’s income rises by 30%, its budget constraint will
A) shift out parallel to the old one.
B) pivot at the Y-intercept.
C) shift in parallel to the old one.
D) be unaffected.
When a monopolist sells two units of output its total revenue is $600. When a
monopolist sells three units of output its total revenue is $630. In order to sell three
units of output instead of only two, the monopolist must
A) increase its price by $30 per unit.
B) decrease its price by $90 per unit.
C) make no change in price and increase output by one unit.
D) decrease its price by $30 per unit.
Table 20.2
Refer to Table 20.2. If both countries specialize and trade with each other, Thailand will
export ________ and China will import ________.
A) motorcycles; tractors
B) tractors; motorcycles
C) tractors; tractors
D) motorcycles; motorcycles
Once a firm is made to internalize a negative externality, the price will
A) increase and output will decrease.
B) increase and output will increase.
C) decrease and output will decrease.
D) decrease and output will increase.
Jerry sells cherry sno-cones along the boardwalk in New Jersey. During the summer
this is a perfectly competitive business, and Jerry faces a perfectly elastic demand
curve. If he wants to try to increase revenues he should
A) raise the price of his sno-cones to make more per sale.
B) lower the price of his sno-cones to try to sell more.
C) keep the price the same but produce more to increase sales.
D) do nothing; there is nothing he can do to increase revenue.
Figure 7.11
Refer to Figure 7.11. The given isocost line represents the firm’s level of total cost. At
the firm’s optimal combination of capital and labor, the firm produces ________ units
of output.
A) 100
B) 200
C) 300
D) indeterminate from this information.
Table 9.1
Refer to Table 9.1. The shutdown point price for this firm is
A) $0.
B) $20.
C) $30.
D) $56.
________ are likely a fixed cost of a firm.
A) Wages paid to employees
B) The payments for supplies
C) Lease payments for office space
D) Travel expenses to meet with clients
If ________ enters into an exchange with another party who has ________ information,
there is asymmetric information and adverse selection.
A) a buyer or seller; an equal amount of
B) a buyer or seller; more
C) only a buyer, but not a seller; more
D) only a seller, but not a buyer; more
The individual firm’s demand curve facing a monopoly is
A) also the market demand curve.
B) the summation of all perfectly competitive firms’ demand curves.
C) nonexistent.
D) the marginal cost curve above minimum average variable cost.
Which of the following will definitely occur when there is a decrease in demand for and
an increase in supply of potato chips?
A) an increase in equilibrium price
B) a decrease in equilibrium price
C) an increase in equilibrium quantity
D) a decrease in equilibrium quantity
________ holds that those with equal ability to pay should bear equal tax burdens.
A) The benefits-received principle
B) Horizontal equity
C) Vertical equity
D) Progressive tax theory
Figure 9.1
Refer to Figure 9.1. The profit maximizing quantity of wheat is ________ bushels.
A) 6
B) 9
C) 12
D) 16
Economists often refer to risk-free ventures as
A) efficient market outcomes.
B) profit opportunities.
C) those with no opportunity costs.
D) break-even propositions.
Assume a tomato farmer owns one truck and employs one driver. One Saturday a month
he brings one truck load of tomatoes to the Farmer’s Market. Over time he discovers
that the demand for his tomatoes has increased dramatically as a result of increased
marketing and advertising for the market. Explain both the short run and the long run
impact on the equilibrium price and quantity of the farmer’s tomatoes. Explain in terms
of elasticity of supply.
The payroll tax rate is 12.4% on an amount of income adjusted annually for inflation
called the wage base (e.g., $97,500 for the year 2007). Half of the tax is withheld from
the employee’s pay with the other half being paid by the employer. How might this tax
be viewed as regressive?
Table 1
Use Table 10.1 to answer the following question. Construct a marginal revenue product
table from the information listed in the table assuming that the firm can sell its product
in a purely competitive market at value added price of $.50.
Comment on the following statement: “Even though the supply of land is perfectly
inelastic, the supply of land in a given use may not be fixed.”
The Deepwater Horizon oil spill in the Gulf of Mexico which began from an explosion
on April 20, 2010 resulted in a ban on shrimp fishing that measures about 10% of the
Gulf. Using the graph below assume that the original supply curve before the spill is
represented by So and the new supply curve is represented by S2 explain the process
that takes place to reach a new equilibrium.
How do economists define the time period known as the long run?
Why would an economist argue that tuition is not the largest cost of attending a state
university?
The average price of gasoline in June of 2008 in the United States was $3.79. This was
up by 82 cents from the previous year. Forecasters are expecting a drop in gasoline
consumption of about 1% for the first time in 16 years. Even though this is a historic
moment what do the figures still demonstrate about the elasticity of demand for
gasoline? If the price increases go unabated what is likely to happen to the long-run
price elasticity for gasoline and why?
Events prior to the 1995 baseball season, including a threatened “lockout” by owners if
the players decided to end their strike, likely had a great effect on attendance at baseball
games. Consider in this scenario market attendance as a measure of quantity and ticket
prices as the measure of price.
Graphically illustrate the effect of both fan dissatisfaction and shorter seasons. What
effect will these changes have on price and quantity?
How do constant returns to scale affect the shape of the long-run average cost curve?
Explain the three fundamental decisions that firms in perfectly competitive markets
must make. Explain how these decisions are interrelated.
What does the phrase “post hoc, ergo propter hoc” mean?
Assume there is a toll bridge that is built by a private firm. It’s been determined by cost
accountants that the marginal cost that each automobile imposes is close to zero. If the
bridge cost $1 million to build and 250,000 automobiles cross it each day what is the
price that would be necessary for the firm to charge in order to achieve the key
efficiency criteria of perfect competition? How might this be a problem for this private
bridge company?
What is marginal social cost?
Is demand more elastic in the short run or the long run? Why?
Consider the market for generic light beer, a product that only has “Light Beer” on its
label. We know that demand for generic light beer falls when income increases, demand
rises when the price of other beer increases, and that demand rises when the price of
potato chips falls.
Graph and explain the effect on equilibrium price and
quantity of an increase in income. What type of good is “Light Beer”?
What is price discrimination?