Advocates of trade barriers suggest that the barriers are needed for national security, job
creation, and to:
A) protect producers who are just starting out so that they can become more established.
B) eliminate the need for governments to become involved in the trade discussions.
C) enhance the comparative advantage nature of trade.
D) increase tariff revenue for government.
When perfect competition prevails, which of the following characteristics of firms are
we likely to observe?
A) They erect and maintain barriers to new firms.
B) There are not many of them.
C) They all try to highlight the substantial product differentiation between producers.
D) They are all price takers.
Figure: Firms in Monopolistic Competition
(Figure: Firms in Monopolistic Competition) In panel (A) of the figure Firms in
Monopolistic Competition, the profit-maximizing quantity of output is determined by
the intersection at point:
A) K.
B) P.
C) N.
D) O.
Figure: The Profit-Maximizing Firm in the Short Run
(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The
Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will
produce quantity _____ and _____ in the short run.
A) q1; break even
B) q3; make a profit
C) q4; break even
D) q5; lose fixed costs
Professor Makrung spends his entire weekly income of $700 on economics books (E)
and coffee (C). The price of an economics book (PE) is $50 and the price of a cup of
coffee (PC) is $2. If the professor buys 10 economics books and 50 cups of coffee per
week, he finds that MUE = 75 and MUC = 3. This implies that a consumption bundle
consisting of 10 economics books and 50 cups of coffee per week maximizes the
professor’s utility.
A) True
B) False
When a firm responds to a rival’s cheating by cheating and to a rival’s cooperation by
cooperating, that firm is practicing a _____ strategy.
A) dominant
B) trigger
C) conclusive
D) tit-for-tat
(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The
marginal utility for the fifth roll is:
A) 15.
B) 10.
C) 5.
D) 0.
(Table: Costs of Producing Bagels) Look at the table Cost of Producing Bagels. The
total cost of producing 2 bagels is:
A) $0.10.
B) $0.20.
C) $0.40.
D) $0.50.
Suppose Governor Meridias initiates a payroll tax of 10% on all income up to $50,000.
Any income above $50,000 is not taxed. This payroll tax will be:
A) progressive.
B) proportional.
C) regressive.
D) structural.
When firms in a particular industry informally agree to charge the same price as the
largest firm in that industry, it is called:
A) satisfying.
B) price extortion.
C) overt collusion.
D) tacit collusion.
Figure: Indifference Curve Map I
(Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. It
shows that:
A) bundles B and D provide the same level of utility.
B) bundle A is preferred to bundle B.
C) bundle D is preferred to bundle C, which is preferred to bundles A and B.
D) bundle C provides the highest level of utility.
Suppose Ivy buys only two things, books and coffee, and receives the same satisfaction
from the last book bought as she did from the last coffee bought. Books cost twice as
much as coffee, and she has spent all of her money. Diminishing marginal utility applies
to both goods. If she is trying to maximize her utility:
A) Ivy should buy more books and less coffee.
B) Ivy should buy more coffee and fewer books.
C) Ivy should buy more coffee and more books.
D) Ivy is making the right choice.
In much of the country, homeowners choose to heat their houses with either natural gas
or heating oil. Which of the following would cause an increase in the demand for
natural gas?
A) an increase in the price of natural gas
B) a decrease in the price of natural gas
C) a decrease in the price of heating oil
D) an increase in consumer incomes
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. What is the value of the marginal product of the third worker to this firm?
A) $5
B) $25
C) $18
D) $10
Along a given downward-sloping demand curve, a decrease in the price of a good will
_____ consumer surplus.
A) increase
B) decrease
C) have no effect on
D) It’s impossible to tell what will happen to consumer surplus.
The Coase theorem states that in the presence of externalities, a market economy will:
A) always reach an efficient solution.
B) never reach an efficient solution.
C) reach an efficient solution if transaction costs are sufficiently low and property rights
are well-defined.
D) reach an efficient solution only in the case of government regulation.
Which of the following statements about monopoly equilibrium and perfectly
competitive equilibrium is INCORRECT?
A) Price is greater than marginal cost in monopoly, and price equals marginal cost in
perfect competition.
B) When a monopoly exists, the consumer surplus is less than if the market were
perfectly competitive.
C) Monopoly output will be less than the output of a comparable perfectly competitive
industry.
D) In the long run, economic profits are driven to zero in both a monopoly and a
perfectly competitive market.
Darnell pays $7,300 per year to an insurance company in return for its promise to pay
part of his family’s medical bills. The $7,300 is Darnell’s:
A) risk.
B) marginal utility.
C) expected utility.
D) premium.
When the percentage change in quantity demanded is larger than the percentage change
in price, demand is said to be:
A) price-inelastic.
B) price unit-elastic.
C) price-elastic.
D) perfectly price-inelastic.
Suppose Governor Meridias decides to initiate a state income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. A
household earning $50,000 has a marginal tax rate of _____ and an average tax rate of
_____.
A) 10%; 10%
B) 10%; 0%
C) 0%; 0%
D) 0%; 10%
Which of the following advertising slogans provides information to potential buyers?
A) “Coffee PalaceStop and smell the coffee!”
B) “Karaoke Maker wants you to just sing it!”
C) “Bee’s Beachside Restaurant is the only restaurant on the beach for 50 miles.”
D) “The Happy Hotel has a happy bed for you.”
(Table:
Production Possibilities Schedule I) Look at the table Production Possibilities Schedule
I. If the economy produces 4 units of consumer goods per period, it also can produce at
most _____ units of capital goods per period.
A) 30
B) 28
C) 10
D) 18
In the short run, a monopolistically competitive firm produces at the optimal level of
output and is earning positive economic profits. In the long run, the _____ of firms
shifts the firm’s demand and marginal revenue curves _____ the firm’s level of output
and _____ the price it can charge until price equals average total cost.
A) entry; leftward, decreasing; decreasing
B) entry; leftward, decreasing; increasing
C) entry; downward, decreasing; decreasing
D) exit; rightward, increasing; increasing
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at
$21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity
effect of selling the sixth motor home is:
A) $20,000.
B) $10,000.
C) $15,000.
D) $21,000.
Total cost divided by the quantity of output produced is:
A) average total cost.
B) average fixed cost.
C) average product.
D) marginal cost.
Figure: A Market in Equilibrium
(Figure: A Market in Equilibrium) Look at the figure A Market in Equilibrium. At the
equilibrium price, this market’s consumer surplus is equal to the area:
A) ABC.
B) ADI.
C) DIF.
D) EHF.
If the marginal rate of substitution of cookies for brownies equals the price of cookies
in terms of brownies when the consumer is on the budget line, the consumer:
A) is maximizing total utility.
B) should consume more cookies and fewer brownies to maximize total utility.
C) should consume fewer cookies and more brownies to maximize total utility.
D) may or may not be maximizing total utility.
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $30,
what is Alexa’s profit per unit at the optimal output?
A) “$13.75
B) $720
C) $0
D) “$12.25
Figure: Tax Incidence
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively elastic demand, as shown in
panel _____, the greater share of the burden of an excise tax on it is borne by _____.
A) D; buyers
B) D; sellers
C) C; sellers
D) C; buyers
Figure: The Market for Lattes
(Figure: The Market for Lattes) If an excise tax of $2.25 is assessed on each latte,
government revenue will be:
A) $225.
B) $400.
C) $450.
D) $1,800.
Figure: Production Possibilities and Circular-Flow Diagram
(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure
Production Possibilities and Circular-Flow Diagram. Assume the two figures represent
the same economy. Suppose that in the circular-flow diagram most firms undergo a
significant increase in productivity. This results in a significant increase in the output of
both coconuts and fish. If all other variables remain unchanged, then the adjustment in
this economy would be best represented in the production possibilities figure by a
movement from point A toward:
A) point A (no movement).
B) point B (a decrease in coconut production and an increase in fish production).
C) point C (a decrease in coconut production).
D) point D (an outward shift of the entire curve).