Figure 13-11
The firm represented in the diagram
A) makes zero economic profit.
B) makes zero accounting profit.
C) should exit the industry.
D) should expand its output to take advantage of economies of scale.
The decision to make the U.S. income tax system progressive was
A) a progressive decision.
B) a positive decision.
C) a decision that was needed to minimize the excess burden of taxation.
D) a normative decision.
Arnold Harberger was the first economist to estimate the loss of economic efficiency
due to market power. Since Harberger’s findings were published, other researchers have
studied this same issue. How do the results of these researchers compare to Harberger’s
results?
A) The other researchers reached conclusions similar to Harberger’s; namely, the loss of
economic efficiency due to market power is about 10 percent of the value of production
in the United States.
B) The other researchers reached conclusions different from Harberger’s; namely, they
found that the loss of economic efficiency due to market power is only about 1 percent
of the value of production in the United States, much less than Harberger’s estimate.
C) The other researchers reached conclusions different from Harberger’s; namely, the
loss of economic efficiency due to market power is about 10 percent of the value of
production in the United States, significantly greater than Harberger’s estimate.
D) The other researchers reached conclusions similar to Harberger’s; namely, the loss of
economic efficiency due to market power is about 1 percent of the value of production
in the United States.
Figure 14-1
Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid
automobile and is the only such company for the past four years. BMW is now
considering producing its own luxury hybrid automobile and Lexus must decide
whether or not to lower the price of its luxury hybrid to counter BMW’s entry into the
luxury hybrid niche. If Lexus lowers its price, will this deter BMW from entering the
market?
A) Yes, because BMW stands to lose $100 million if it competes with Lexus.
B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
C) No, because BMW will still make a profit of $120 if it competes with Lexus.
D) No, because BMW will be able to break Lexus’ first mover advantage.
When Americans increase their demand for Japanese goods,
A) the demand for dollars will rise, and the demand for yen will rise.
B) the demand for dollars will fall, and the demand for yen will rise.
C) the supply of dollars will rise, and the demand for yen will rise.
D) the supply of dollars will fall, and the demand for yen will fall.
According to the quantity theory of money, if the money supply grows at 20 percent
and real GDP grows at 5 percent, then the inflation rate will be
A) 15 percent.
B) 20 percent.
C) 25 percent.
D) 100 percent.
The cost of group health insurance is lower than if an individual buys a policy on his
own because
A) the problem of adverse selection is reduced.
B) moral hazard costs of a group tend to move to a low average.
C) it is easier for the company to deny claims from a large group.
D) insuring a group eliminates the problem of buyers having more information than the
seller.
Collusion occurs when
A) a firm chooses a level of output to maximize its own profit.
B) two firms’ price and output decisions come into conflict.
C) there is an agreement among firms to charge the same price or otherwise not to
compete.
D) firms refuse to follow their price leaders.
Figure 4-1 Figure 4-1 shows Kendra’s
demand curve for ice-cream cones.
What is the total amount that Kendra is willing to pay for 3 ice cream cones?
A) $2.50
B) $7.50
C) $9.00
D) $13.50
Figure 16-7 The Lizard Lounge is well
known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for
cocktails.
The owners of the Lizard Lounge are considering the following four pricing options:
a. A single price scheme where the cocktail price equals the monopoly price.
b. A single price scheme where the cocktail price equals the competitive price.
c. A two-part tariff: a monopoly cocktail price and a cover charge that will generate
total revenue equal to the area X.
d. A two-part tariff: a competitive cocktail price and whatever cover charge that will
generate a total revenue equivalent to the area X + Y + Z. Which pricing scheme(s)
achieve the economically efficient outcome?
A) schemes a and c
B) scheme b
C) schemes b and d
D) scheme d only
Total dividend payments plus retained earnings divided by outstanding stock shares
equals
A) the price-earnings ratio.
B) earnings per share.
C) the dividend yield.
D) the year-to-date percentage change.
In conducting monetary policy, how has the Federal Reserve enhanced its credibility?
A) by not following through with changes it has announced
B) by revealing the Fed’s target for the federal funds rate
C) by keeping the minutes of the open market committee meetings confidential
D) by marketing and increased expenditure on advertising
The relationship between consumer spending and disposable personal income is
A) an inverse relationship.
B) a direct relationship.
C) a negative relationship.
D) independent.
If the Federal Reserve attempts to continue reducing unemployment by manipulating
monetary policy, which of the following would you expect to see?
A) The Fed’s policies will be deflationary.
B) The Fed’s policies will be inflationary.
C) The rate of inflation will fall as the Fed tries to reduce the unemployment rate.
D) The Fed will reduce the natural rate of unemployment.
Because consumers who have insurance provided by their employers usually only pay a
deductible for a visit to the doctor’s office, they ________ of health care services than
they would if they paid a price that better represented the true cost of providing the
service.
A) demand a larger quantity
B) demand a smaller quantity
C) supply a larger quantity
D) supply a smaller quantity