Since price tends to equal marginal utility, the price of water is low and the price of
diamonds is high.
a. True
b. False
Elasticity of demand equals the ratio of the percentage change in quantity demanded to
the percentage change in the price of the good.
a. True
b. False
At a profit-maximizing output level,
a. marginal revenue minus marginal cost equals zero.
b. marginal profit equals zero.
c. the slope of the total profit curve is zero.
d. All of the above are true.
Why do firms spend money on costly innovation?
a. Competitive markets leave firms no choice but to innovate.
b. Innovation is a low-risk activity.
c. Innovation always results in higher profits for firms.
d. Innovation is usually profitable because the majority of innovations reach the market
place.
e. Because innovation is beneficial for society and firms are motivated to act in ways
that are beneficial for society.
A well-known women’s college whose tuition lagged below similar schools found
recruiting difficult and enrollment falling. A substantial tuition increase was
implemented, and dormitories were soon full again. This can be explained by
a. the law of demand.
b. the fact that education at the school was an inferior good.
c. the fact that people sometimes base perceptions of quality on price (snob effect).
d. elastic demand.
Laissez faire is a policy that espouses central planning.
a. True
b. False
Economic profit can be viewed as
a. a reward for bearing risks.
b. an undeserved “reward” for exercising monopoly power.
c. a reward for innovation.
d. All of the above are correct.
A recession is a period of time in which the total output of the economy rises.
a. True
b. False
Figure 7-9
Of the graphs in Figure 7-9, which represents average fixed cost?
a. 1
b. 2
c. 3
d. 4
As an apparent result of airline deregulation,
a. many small communities have been left without airline service.
b. the wages and benefits of airline workers have been reduced.
c. air fares have risen more quickly than they probably would have under continued
regulation.
d. small commuter airlines have almost vanished.
A decision to supply labor or not to supply it is also a decision to
a. earn the highest possible wage.
b. demand or forgo a certain amount of leisure.
c. be as productive as possible.
d. join the union.
The price for labor is the wage rate. What happens to the quantity of labor demanded if
wages increase?
a. It increases.
b. It decreases.
c. It does not change.
d. The whole demand schedule shifts to the left.
Which of the following positions would a mercantilist support?
a. Trade in manufacturing goods is good for the US.
b. Imports to the U.S. from Japan are beneficial to the U.S.
c. Exports from Japan to the U.K. are beneficial to Japan.
d. Movement of labor from UK to US is beneficial to US.
If the demand for land shifts upward, rents will be
a. earned by some land that was formerly unprofitable.
b. lost to many landowners.
c. diminished for society as a whole.
d. taxed away to help pay the costs of government.
Perfectly competitive firms are known for being “price makers.”
a. True
b. False
Quotas increase the profits of importers but decrease the profits of exporters.
a. True
b. False
Free market economies
a. often have dirty air and rivers.
b. acting on their own do not do enough to efficiently deal with externality problems.
c. while not protecting the environment automatically do offer a powerful tool that may
be used for that purpose.
d. All of the above are correct.
Figure 22-9
In Figure 22-9, Pestoland at price OA
a. is importing MN pasta from Pastaland.
b. is exporting MN pasta to Pastaland.
c. is exporting XY pasta to Pastaland.
d. is exporting OZ pasta to Pastaland.
The second largest source of income for the federal budget is:
a. personal income taxes.
b. corporate income taxes.
c. payroll taxes.
d. inheritance taxes.
Input-output analysis was developed by Wassily Leontief.
a. True
b. False
Compared to a perfectly competitive industry, a monopoly produces a smaller output
and charges a higher price.
a. True
b. False
The following price-quantity coordinates for gold used by U.S. dentists were observed:
P = $875/ounce, Q = 342,000; P = $200/ounce, Q = 706,000. These points most likely
lie along the
a. supply curve for gold for dental use.
b. demand curve for dental use.
c. equilibrium curve for dental use.
d. production possibilities curve for dental use.
Detrimental externalities like pollution are a shortcoming of the market mechanism. Do
they occur in free market economies alone? Explain with examples.
If a manager has determined that a particular piece of capital is likely to increase the
cash flow of a business by $10,000 for the next five years, what is the present value of
the capital at an interest rate of 10 percent? (Assume that the cash flow first increases
one year from today.)
Suppose a study showed that as the income of doctors increased, doctors spent more
time on the golf course and less in the office. What would such a conclusion say about
the relative sizes of substitution and income effects?
Bob values the utility of a single scoop of Baskin-Robbins ice cream at $1,50 A double
scoop gives total utility of $2,25, while a triple scoop yields $2,60 Baskin-Robbins
charges $1,35 for a single, $1,95 for a double, and $2,35 for a triple. How many scoops
will Bob buy?
Suppose that a negative income tax was created that set a minimum income for a family
of $5,000 per year and had a marginal tax rate of 33 percent. What is the break-even
level of income? If a person earned $5,000, what would the after-tax income level be?
If the earnings were $10,000, what would the after-tax income be?