A person who chooses ________ the labor force reveals that either leisure or the value
of nonpaid labor is worth ________ to him or her than the value that society places on
his or her potential product in the market.
A) to stay in; more
B) not to be in; more
C) to exit; less
D) to enter; more
Table 11.2
Refer to Table 11.2. If the interest rate is 22%, then the farmer will only
A) buy the bookkeeping software.
B) buy the bookkeeping software and the grain storage tanks.
C) buy the tractor and the irrigation system.
D) buy the tractor.
Investors put up $52,000 to construct a building and purchase all equipment for a new
restaurant. The investors expect to earn a minimum return of 10 percent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs.
Variable costs include $1,000 in weekly wages and $600 per week for materials,
electricity, etc. The restaurant charges $3 on average per meal.
In the short run, if the restaurant decides to stay open, it will make operating profits of
A) $1,100.
B) $0.
C) $1,100.
D) $2,700.
Figure 12.3
Refer to Figure 12.3. The DVD industry is a constant-cost industry. As the demand for
DVD players shifts from D to , which of the following is LEAST likely to result?
A) More resources will be allocated to produce DVD players.
B) The demand for DVDs will increase.
C) If the market for DVD players is competitive, the price will increase to $5.00 in the
short and long run.
D) If the market for DVD players is perfectly competitive, economic profits in this
industry will increase in the short run, but will fall back to zero in the long run.
You spend $150 every month planting flowers in your front yard. Your neighbor has
told you that she derives $20 a month in enjoyment from being able to look at your
beautiful flowers. Which of the following is true?
A) You are spending too much on flowers because your neighbor derives only $20
worth of benefits.
B) You should refuse to spend anything on flowers unless your neighbor pays you $20 a
month.
C) If you took into consideration the benefits your neighbor derived, the efficient level
of flower planting would be greater than $150 a month.
D) If you took into consideration the benefits your neighbor derived, the efficient level
of flower planting would be less than $150 a month.
The theory of comparative advantage is credited to
A) Adam Smith.
B) David Ricardo.
C) John Maynard Keynes.
D) Milton Friedman.
A theory of taxation that states that citizens should bear tax burdens in line with their
ability to pay taxes is the
A) ability-to-pay principle.
B) equity principle.
C) benefits-received principle.
D) equal payment principle.
In an imperfectly competitive industry,
A) a single firm has no control over the price of its output.
B) a single firm has some control over the price of its output.
C) a single firm will be able to sell all of its output at whatever price it wants to charge.
D) the government will always regulate the output price.
If P < ATC, then a profit-maximizing, monopolistically competitive firm earns
________ economic profits.
A) positive
B) negative
C) zero
D) either positive or negative
Figure 18.1
Refer to Figure 18.1. ________ is inefficient because both people could be made better
off simultaneously.
A) Point A
B) Point B
C) Any point along the curve
D) Any point outside the curve
Irving Fisher argued for a tax on consumption instead of on income because
A) the standard of living depends not on income, but on how much is consumed.
B) consumption is the best indication of ability to pay.
C) a tax on income discourages saving by taxing savings twice.
D) a tax on consumption raises more revenue than a tax on income.
Table 14.3
B’s Strategy
Refer to Table 14.3. The result of this game is a prisoners’ dilemma. In which of the
following cases is it most likely that the firms will be able to overcome the prisoners’
dilemma?
A) repeated play
B) a single interaction
C) when both firms follow a maximin strategy
D) government intervention
When a new firm begins production in the ________ model, it assumes its demand
curve is the market demand less the amount the other firm is selling.
A) Cournot
B) collusion
C) cartel
D) price leadership
Mustard and mayonnaise are substitutes. Mustard and relish are complements. Mustard
is a normal good. During the summer, about 50% of all mustard was recalled by
manufacturers and removed from store shelves.
Refer to Scenario 3.2. If at the same time of the mustard recall, consumer income also
decreased, then, ceteris paribus, in the market for mustard this would have caused
A) both the equilibrium price and quantity to decrease.
B) the equilibrium price to increase and the equilibrium quantity to decrease.
C) the equilibrium price to either increase, decrease, or remain the same and the
equilibrium quantity to decrease.
D) the equilibrium quantity to increase, decrease, or remain the same and the
equilibrium price to decrease.
Figure 13.4
Refer to Figure 13.4. This firm’s marginal revenue will be negative at
A) prices below $10.
B) prices above $12.
C) all prices.
D) prices between $4 and $18.
Total cost refers to
A) the full economic costs of production.
B) the sum of average fixed cost and average variable cost.
C) the fixed costs of production.
D) the explicit costs of production.
The table below shows the supply and demand for pencils:
(a.) What is the equilibrium price and quantity? How can you tell?
(b.) Suppose the current price is $0.20. What situation is present? Will the price remain
at $0.20? Why or why not?
Suppose a policy change will generate $180,000 of benefits for low-income families
and $150,000 of costs for high-income and middle-class families. This change can best
be described as
A) inefficient.
B) Pareto efficient.
C) potentially efficient.
D) equitable.
Figure 3.14
Refer to Figure 3.14. An increase in the price of pizza sauce 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.
Figure 2.1
Refer to Figure 2.1. Macroland is currently operating at Point A. The best explanation
for this is that
A) the economy has very poor technology.
B) the economy’s resources are being used inefficiently.
C) the economy has very few resources.
D) the economy operates as an efficient market.
Table 3.1
Refer to Table 3.1. In this market there will be an excess demand of 600 pizzas at a
price of
A) $3.
B) $6.
C) $12.
D) $15.
The Stay-Dry Company monopolizes the sale of umbrella hats. The company is
currently setting marginal revenue equal to marginal cost and selling 2,500 umbrella
hats at a price of $40 each. Total costs for the company are $180,000 of which fixed
costs are $90,000. You are hired as an economic consultant to this company. You should
advise this monopolist to
A) shut down in the short run and exit the industry in the long run.
B) produce in the short run and expand capacity in the long run.
C) produce in the short run but exit the industry in the long run if conditions do not
change.
D) shut down in the short run but expand capacity in the long run if conditions do not
change.
You are the owner and only employee of a company that writes computer software that
is used by gamblers to collect sports data. Last year you earned a total revenue of
$90,000. Your costs for equipment, rent, and supplies were $60,000. To start this
business you invested an amount of your own capital that could pay you a return of
$40,000 a year.
Your accounting profit last year was
A) $10,000.
B) $30,000.
C) $50,000.
D) $60,000.
If a firm’s production process generates external costs, the firm will produce the socially
efficient level of the output if the government imposes a tax equal to the marginal
A) damage cost.
B) private cost.
C) benefit.
D) social cost.
The price elasticity of demand for bottled water in Texas is -2, and the price elasticity of
demand for bottled water in California is -0.5. In other words, demand in Texas is
________, and demand in California is ________.
A) elastic; inelastic
B) inelastic; elastic
C) elastic; unit elastic
D) inelastic; unit inelastic
________ buys so as to make MUx/MUy = Px/Py for all pairs of goods.
A) A utility-minimizing consumer
B) Every consumer
C) A utility-maximizing consumer
D) Only a consumer with an unlimited budget
Table 6.2
Refer to Table 6.2. The total utility of five donuts per day is
A) 230.
B) 240.
C) 260.
D) indeterminate from this information.
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.
If the number of stores renting DVDs increases by 10%, which of the following would
occur?
A) The rental price of DVDs would increase, and the price of plasma TVs and movie
tickets would decrease.
B) The rental price of DVDs and the price of movie tickets would decrease, but the
price of plasma TVs would increase.
C) The rental price of DVDs and the price of movie tickets would increase, but the
price of plasma TVs would decrease.
D) The rental price of DVDs would increase, but the price of plasma TVs and movie
tickets would be unaffected.
Assume the total product of two workers is 80 and the total product of three workers is
90. The average product of three workers is ________, and the marginal product of the
third worker is ________.
A) 10; 45
B) 30; 10
C) 10; 13.33
D) 160; 270
Figure 7.10
Refer to Figure 7.10. The slope of isocost CE is
A) -1/2.
B) -1.
C) -2.
D) indeterminate from this information, as the prices of capital and labor are not given.
The following are some changes that may take place in the market for textbooks. For
each of the following, indicate what will happen to either the demand for or the supply
of textbooks by listing which curve is affected and then the terms: “shift right or “shift
left”.
(a.) An increase in student enrollment at universities across the country.
(b.) A decrease in the price of ink used to print textbooks.
(c.) A drop in income (textbooks are a normal good).
(d.) An improvement in the technology used to print textbooks.
(e.) An increase in college tuition.
In a ________ economy, the labor market does not function freely and there is
essentially no such thing as unemployment.
A) laissez-faire
B) capitalist
C) centrally planned
D) market driven
A firm producing three-ring binders reports the following production information:
The binders sell in a competitive market at a price of $0.15 each. The firm hires
workers in a competitive labor market at a wage of $10 per hour. The firm is currently
hiring two workers and is considering hiring a third worker. What would you
recommend the firm do? Why?
Examine the following function: Y = 3x + 2. What is the slope of this function and
why?
List two implications of rent-seeking behavior.
If the law of increasing opportunity cost holds, can the production possibility frontier be
a straight line?
Explain the Heckscher-Ohlin theorem.
A decrease in the supply of steel results in a shortage of steel at the original equilibrium
price. Explain how market forces will act to eliminate the shortage.
Critically evaluate the following statement. “Automobile manufacturers continue to
produce cars that are dangerous. Therefore the industry should be considered as a
market failure and safety mandates should be imposed by the government to insure that
all cars are completely safe.”
What is an externality?
Michelle’s Secretarial Services rents a copying machine for $50 per month plus a per
copy charge of $0.10 per copy. Draw a diagram showing the relationship between the
number of copies made and the firm’s monthly copying bill. What is the slope of the
line drawn? If the firm makes 5,000 copies in one month, what will be the bill for
copying?
What is marginal damage cost?
Explain what post hoc fallacy means and give an example.
Explain the moral hazard that automobile insurance companies face. What methods do
they employ to try to mitigate this problem? Explain carefully.
Describe the state of affairs in the developing world concerning social overhead capital?
Comment on the following statement: “A firm with market power is able to charge any
price it likes.”
Provide the definition for a regressive tax and give an example.
List the three major sources from which households derive their incomes.
Comment on the following statement: “I decided to buy a car from a dealer in a town
100 miles away because he was offering a price that was $100 lower than the dealer in
my hometown. Therefore, I saved $100.”
XM Satellite Radio and Sirius Satellite, who are the only major satellite radio
companies serving the United States, were given permission in March of 2008 by the
Justice Department to merge. Can you think of any reasons why there was no real worry
about monopoly power?