Prices below the free market equilibrium price are inefficient because the willingness to
pay by someone to consume an additional unit ________ the marginal cost to someone
for producing that unit.
A) exceeds
B) is less than
C) equals
D) None of the above; efficiency is defined in terms of natural resources, not market
equilibrium.
If the demand for horse race tickets is inelastic, then as the price of horse race tickets
increases, quantity demanded of horse race tickets will ________ and total revenue will
________.
A) decrease significantly; increase
B) decrease slightly; increase
C) increase slightly; decrease
D) increase significantly; decrease
In Figure 2.3, point A:
Figure 2.3
A) implies unemployment of some resources.
B) is the optimum.
C) cannot be produced.
D) all of the above.
Refer to Figure 12.10. The data in the boxes are the annual profits for each company
whether they choose to advertise or not. If Lil Box follows its dominant strategy it will:
A) earn$ 6 million.
B) earn $4 million.
C) earn $10 million.
D) earn $5 million.
Suppose that local dry cleaner shop faces a demand curve that is liner and that the
current price for its garments is set at a point where the price elasticity is 1.7. If the
local dry cleaner shop increases the price per garment:
A) the demand becomes less elastic and the total revenue decreases.
B) the demand becomes more elastic and the total revenue decreases.
C) the demand becomes less elastic and the total revenue increases.
D) the demand becomes more elastic and the total revenue increases.
Assume that tortilla chips and salsa are complements. When the price of tortilla chips
decreases:
A) the demand for salsa increases.
B) the demand for salsa decreases.
C) the supply of salsa decreases.
D) the demand for tortilla chips decreases.
Which one of the following is the best example of an oligopolistic industry?
A) wheat growers
B) apple growers
C) public utilities
D) soft drinks
Long-run equilibrium for a perfectly competitive industry occurs when:
A) P = MC = ATC.
B) P = MC = AVC.
C) P = MC = AFC.
D) P > MC = ATC.
One factor which was responsible for roughly one-fifth of hybrid vehicles purchased in
2007 was a federal subsidy of up to $3,400 per hybrid vehicle. The increase in sales due
to this subsidy is an example of which element of the economic way of thinking?
A) responding to incentives
B) thinking at the margin
C) isolating variables
D) using assumptions to simplify
As compared to a pollution tax, a command-and-control policy will:
A) increase production costs by a smaller amount.
B) increase price by a smaller amount.
C) shift the supply curve to the left by a smaller amount.
D) shift the supply curve to the left by a larger amount.
Refer to Figure 5.7. As the price of W increased, the demand for Y shifted from to
. The cross-price elasticity of demand between W and Y is:
A) positive.
B) negative.
C) zero.
D) indeterminate from this information.
Which of the following benefits from a quota or VER?
A) consumers
B) domestic producers
C) the government
D) all of the above
The difference between the maximum amount a person is willing to pay for a good and
its current market price is known as:
A) the paradox of value.
B) profits.
C) revealed preferences.
D) consumer surplus.
A perfectly competitive firm is producing a good at a level where P = $90 and MC =
$90. The firm will continue to produce as long as:
A) AVC is less than $90.
B) AFC is less than $90.
C) price does not increase.
D) ATC is greater than $90.
Figure 8.2 presents a firm’s marginal, average total, average fixed, and average variable
cost curves. The firm minimizes average variable costs by producing ________ units.
A) 50
B) 100
C) 150
D) 200
In a two-party democratic system, individuals running for office typically:
A) appeal to the “right-wing” voters in society.
B) appeal to the “middle-of-the-road” voters in society.
C) do what they think will weaken the other party long term.
D) tell the voters the truth.
Recall the Application about the relationship between consumer search and
income to answer the following question(s).
According to the Application, consumer search is ________ on workdays and is
therefore ________ than on weekends.
A) more costly; more extensive
B) more costly; less extensive
C) less costly; more extensive
D) less costly; less extensive
If the demand for water is inelastic, then as the price of water falls, quantity demanded
of water will ________ and total revenue will ________.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; decrease
Increased specialization in large firms might lead to:
A) upward-sloping marginal cost curves.
B) horizontal marginal cost curves.
C) downward-sloping long-run average cost curves.
D) upward-sloping long-run average cost curves.
On South Street in Philadelphia, there are many Italian restaurants. Each Italian
restaurant carries a slightly different menu. In what type of market structure do these
Italian restaurants belong?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
According to the principle of diminishing returns, if all factors of production but one
are held constant and if that one factor is doubled, then eventually output will most
likely:
A) double too.
B) less than double.
C) more than double.
D) none of the above
Pay disparity by race:
A) is caused by a combination of discrimination and differences in skills.
B) is caused solely by discrimination.
C) is caused solely by differences in skills.
D) has disappeared in the last five years.
In the market for automobile insurance, asymmetric information occurs when:
A) insured drivers drive more safely than uninsured drivers.
B) insured drivers drive more recklessly than uninsured drivers.
C) drivers with greater risk purchase more automobile insurance.
D) automobile insurance is universal.
The gridlock and smog that are associated with traffic in large cities are known as:
A) direct costs.
B) business costs.
C) external costs.
D) equilibrium costs.
In Figure 5.4 supply elasticity is infinite in graph:
Figure 5.4
A) A.
B) B.
C) C.
D) D.
In which of the following situations can a firm or individual apply for a patent?
A) A firm develops a new tool that makes cutting grass much easier.
B) An author publishes a new novel.
C) Nicki Minaj, a recording artist, releases a new CD in the market.
D) All of the above are activities that can be patented.
Rent control leads to quantity supplied being ________ quantity demanded.
A) equal to
B) greater than
C) less than
D) Either A or B is correct.
Recall the Application. Which of the following factors is used in determining the
demand for CO2 allowances in the EU?
A) the level of economic activity
B) fuel prices
C) weather
D) all of the above
A firm is more likely to have a natural monopoly when:
A) the size of the market is small relative to the efficient scale of the firm.
B) the size of the market is large relative to the efficient scale of the firm.
C) the firms face no or low fixed costs.
D) the government grants the firm an exclusive license to operate.
Suppose that OPEC currently sets the oil price at $1.50 per gallon, and the current
consumption is 100 million gallons per day. The price elasticity of demand for oil is
estimated to be 0.7 by the initial value method. If OPEC raises the oil price to $1.80 per
gallon:
A) quantity demanded decreases by 10 million gallons while total sales revenue
increases by $4.4 million per day.
B) quantity demanded decreases by 14 million gallons while total sales revenue
increases by $4.8 million per day.
C) quantity demanded decreases by 10 million gallons and total sales revenue decreases
by $4.4 million per day.
D) quantity demanded decreases by 14 million gallons and total sales revenue decreases
by $4.8 million per day.
Suppose that in 2012 ABC Corp. produced 500 million units of a good at an average
cost of $2, and in 2013 ABC Corp. expanded its plant capacity and produced 600
million units at an average cost of also $2. In this range, one can conclude that ABC
Corp. is experiencing:
A) economies of scale.
B) diseconomies of scale.
C) neither economies of scale or diseconomies of scale.
D) diminishing marginal product.
Which of the following is a reason why wage rates may differ among workers?
A) differences in skills required
B) differences in working conditions
C) racial and gender discrimination
D) all of the above
The market supply curve for a particular good:
A) shows the relationship between the price of the good and the quantity that all
producers together are willing to sell.
B) is drawn assuming that the other variables besides product price that affect supply
are fixed.
C) is drawn assuming that the number of producers is fixed.
D) all of the above
When the wage falls:
A) all workers will work more hours.
B) all workers will work fewer hours.
C) some workers will work more hours and some workers will work fewer hours, but
on average, hours worked will fall.
D) some workers will work more hours and some workers will work fewer hours, but
we don’t know whether average hours will increase or decrease.