The rule for making optimal decisions is that an activity should be increased until:
A. average costs are minimized.
B. total costs are minimized.
C. total benefits are maximized.
D. marginal benefits equal marginal costs.
Answer:
Along a straight-line demand curve, total revenue is the highest when elasticity of
demand is:
A. zero.
B. 1.
C. infinity.
D. between zero and 1.
Answer:
Value judgments in economics:
A. are necessary when objective analysis cannot address a question.
B. can always be avoided with the use of objective analysis.
C. are essential parts of positive economics.
D. can be avoided through the use of normative economics.
Answer:
Most economists:
A. oppose free trade.
B. favor free trade.
C. have no opinion on free trade.
D. would prefer to have no trade with other nations.
Answer:
If a negative externality exists in the production of paper and paper is sold in a perfectly
competitive market, at the equilibrium output:
A. additional net gains to society are possible by reducing the output of paper.
B. additional net gains to society are possible by increasing the output of paper.
C. the marginal social benefit of paper equals its marginal social cost.
D. additional net gains to society are not possible from either increasing or decreasing
the output of paper.
Answer:
A monopsonist will pay a wage that:
A. is greater than that in a perfectly competitive labor market.
B. is the same as that in a perfectly competitive labor market.
C. is less than that in a perfectly competitive labor market.
D. may be greater than, less than, or equal to that in a perfectly competitive labor
market, depending on labor supply.
Answer:
Many economists, both liberal and conservative, were critical of much of the early
environmental legislation. An important reason for the economists’ critique was that
economists:
A. thought the goals of the legislation were wrong.
B. worried that the costs sometimes were greater than the benefits.
C. trust the market to solve all problems of resource use.
D. worry about fairness of regulations more than noneconomists do.
Answer:
The opportunity cost of attending college for one year is best measured by the:
A. benefit received by the student.
B. tuition paid for the year.
C. value of the next-best activity forgone by attending college.
D. total money expenses associated with attending college.
Answer:
The effect that explains why workers tend to supply more hours when wages increase is
called the:
A. income effect.
B. social effect.
C. substitution effect.
D. work effect.
Answer:
Suppose that government wants a policy that will encourage people to use less oil. For
this policy to be efficient, it must:
A. induce those with the highest cost of conserving to reduce their oil consumption the
most.
B. induce those with the lowest cost of conserving to reduce their oil consumption the
most.
C. force everyone to reduce oil consumption equally.
D. force rich people to reduce oil consumption proportionally more than poor people.
Answer:
When quantity supplied is greater than quantity demanded, prices tend to:
A. fall.
B. rise.
C. stay the same.
D. remain constant until the next season.
Answer:
U.S. baby boomers are beginning to retire and withdraw their savings for retirement.
What effect should we expect this to have on equilibrium price and quantity of financial
assets?
A. Price rises and quantity also rises
B. Price rises and quantity falls
C. Price falls and quantity rises
D. Price falls and quantity also falls
Answer:
An attorney for a firm that is arguing that its market is competitive rather than
monopolistic would be most likely to argue that the relevant market is shown by a:
A. three-digit NAICS industry.
B. four-digit NAICS industry.
C. five-digit NAICS industry.
D. six-digit NAICS industry.
Answer:
Refer to the graph shown. The poorest 50 percent of the families earn:
A. 6 percent of the income.
B. 19 percent of the income.
C. 36 percent of the income.
D. 64 percent of the income.
Answer:
An assumption of economists’ standard theory of choice is that:
A. individuals maximize marginal utility.
B. preferences are given and are not shaped by society.
C. it is costly for a consumer to make optimal choices.
D. individuals use rules of thumb to make decisions.
Answer:
Refer to the graph shown. A possible explanation for the difference between the
distribution of income before taxes and the distribution of income after taxes shown in
the graph is that the tax system:
A. is regressive.
B. is proportional.
C. is progressive.
D. does not affect income inequality.
Answer:
Microsoft ended IBM’s domination of computers by allowing PCs to replace many of
the tasks that were performed by mainframes. In a similar fashion, the Internet may:
A. replace mainframes and further hurt IBM’s hold on computer power.
B. weaken Microsoft’s power based on Microsoft’s production of computers.
C. weaken Microsoft’s power by offering online products that do not require the
Microsoft operating system.
D. provide a way for IBM to sell more computers and weaken Microsoft’s power.
Answer:
If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2,
and U.S. workers produce 9 times as much output per hour as Mexican workers, then,
all else equal, it would be efficient to locate production facilities in:
A. the United States since the cost per unit of output will be higher.
B. the United States since the cost per unit of output will be lower.
C. Mexico since the cost per unit of output will be higher.
D. Mexico since the cost per unit of output will be lower.
Answer:
The fact that U.S. managers’ salaries are about four times higher than those of
comparable managers in Japan, where banks control firms more closely, is probably:
A. an example of the monitoring problem in the United States.
B. an example of X-inefficiency in Japan.
C. due to the fact that the U.S. economy is much less competitive.
D. due to the fact that there are more natural monopolies in the United States.
Answer:
The marginal cost curve intersects the average total cost curve when average variable
costs are:
A. falling.
B. rising.
C. at a minimum.
D. at a maximum.
Answer:
Economic reasoning would never help you decide:
A. whom to marry.
B. what kind of work to do.
C. whether to read this book.
D. what is morally right and what is wrong.
Answer:
In the two-thirds game, in which you choose a number between 1 and 100 that is
two-thirds of the average chosen by the group, the rollback strategy is to:
A. choose a number randomly.
B. be the last person to choose a number.
C. be the first person to choose a number.
D. choose zero.
Answer:
The National Hockey League locked out the hockey players in an effort to negotiate a
salary cap with the players’ union. A cap would limit the payroll of each team. League
officials acknowledged that the teams have brought the problem on themselves by
overspending and overpaying some players in an effort to compete for the best players.
Why would the teams have caused this problem for themselves?
A. They used explicit collusion instead of implicit collusion.
B. They tried to create a contestable market and now suffer because there are no
barriers to entry.
C. They were caught in the logic of the prisoner’s dilemma in which each player
maximizing his own self-interest leads to an outcome that is worse off for everyone.
D. They tried to create a cartel and suffered the consequences of too much collusion.
Answer:
Which of the following is an example of a short-run decision?
A. An automobile manufacturing company is considering whether to invest in robotic
equipment to develop a more cost-effective production technique.
B. An automobile manufacturing company is considering whether to expand its existing
workforce.
C. A business consulting firm is considering whether to open a new office in another
city where many of its clients are based.
D. A business consulting firm is considering whether to hire new consultants, move to a
larger space, and purchase additional equipment.
Answer:
Refer to the graph shown. To maximize profit, this firm should produce:
A. 120 units of output.
B. 250 units of output.
C. 450 units of output.
D. 525 units of output.
Answer:
Behavioral economists support:
A. eliminating the basic building blocks.
B. eliminating graphs.
C. eliminating the supply and demand model.
D. maintaining the basic models.
Answer:
Which of the following generalizations is derived from an economic framework?
A. Politicians have more of an incentive to act fastto look as if they’re doing
somethingthan to take enough time to get something done well that makes sense from a
cost/benefit point of view.
B. Policies that relieve immediate suffering often have the best long-run consequences.
C. Individuals’ self-interest-seeking activities always serve to make government policies
more effective.
D. Government regulations have the same impact whether they are designed on the
basis of cost/benefit analysis or are developed as a reaction to real-world events.
Answer:
The foreign exchange rate is the rate at which:
A. taxes are imposed on foreign imports.
B. foreign good are traded between domestic consumers.
C. one country’s currency can be traded for another country’s currency.
D. immigrants are exchanged between countries.
Answer:
For which of the following goods is the demand curve likely to be most inelastic?
A. Hershey’s Symphony chocolate bar
B. chocolate bars with nuts
C. candy
D. chocolate bars
Answer:
Fixed costs plus variable costs equal:
A. total costs.
B. average total costs.
C. average costs.
D. marginal costs.
Answer:
Advocates of nudge policy argue that these policies are libertarian because they:
A. enhance happiness and therefore liberty.
B. leave people free to make their own choices.
C. correct market distortions.
D. change incentives without forcing people to make particular decisions.
Answer:
Price exceeds marginal cost for a monopolistically competitive firm in long-run
equilibrium because:
A. economic profits are positive.
B. economic profits are negative.
C. demand is perfectly elastic.
D. demand is not perfectly elastic.
Answer:
Online music stores such as Apple’s iTunes provide an alternative to buying CDs. The
introduction of online music stores has shifted:
A. the supply curve of CDs to the right.
B. the supply curve of CDs to the left.
C. the demand curve of CDs to the right.
D. the demand curve of CDs to the left.
Answer:
Why are patents important to those who hold them?
A. Without patents, there will no longer be economies of scale in production.
B. Patents act as a barrier to entry, allowing monopoly profits.
C. Without patents, there would be considerably more price discrimination in the
market.
D. Patents actually do not matter because they do not guarantee that a firm will make a
profit.
Answer: