Because resources are limited:
A) only the very wealthy can get everything they want.
B) firms will be forced out of business.
C) the availability of goods will be limited but the availability of services will not.
D) people must make choices.
When wages increase, the income effect ________ the supply of labor and the
substitution effect ________ the supply of labor.
A) decreases; increases
B) increases; decreases
C) increases; increases
D) decreases; decreases
Lemon laws:
A) protect producers from unsatisfied buyers.
B) require automakers to repurchase automobiles that experience frequent problems
during their first year of use.
C) increase the quantity of lemons for sale on the used car market.
D) none of the above
Recall the Application. Before people generally carried their own time pieces, towns
often built their own clock towers. In these situations there was a free rider problem
because:
A) many people at that time refused to pay taxes.
B) towns paid for the clock towers with voluntary contributions.
C) few people could tell time.
D) only a small fraction of the population was taxed by the towns.
The price elasticity of demand for gasoline is 0.5 and the price elasticity of supply for
gasoline is 1.1. If demand rises by 25%, the price of gasoline will:
A) rise by 15.6%.
B) fall by 15.6%.
C) rise by 6.4%.
D) fall by 6.4%.
According to the Application, the regular price elasticities of demand found at
www.ers.usda.gov are reported as:
A) positive numbers.
B) negative numbers.
C) dollars per unit of foreign currency.
D) foreign currency units per dollar.
A decrease in the demand for musicians ________ the number of musicians employed,
and ________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Which of the following factors would indicate less elastic demand?
A) The good represents a large fraction of the budget.
B) Demand is measured over a longer period of time.
C) There are few substitutes.
D) The price of the good is high.
If the wage paid to workers increases, the labor demand curve:
A) will not shift.
B) shifts to the left and fewer workers are hired.
C) shifts to the right and more workers are hired.
D) shifts to the right and fewer workers are hired.
At a price of $20, the marginal revenue of a monopolist is $12. If the marginal cost of
production is $10, what should the monopolist do in order to maximize profits?
A) Increase its price.
B) Decrease its price.
C) Keep its price at the same level.
D) not enough information to solve
If the U.S. population increases, then:
A) the demand for electricity increases.
B) the demand for electricity decreases.
C) the quantity demanded for electricity decreases.
D) the quantity demanded for electricity increases.
According to the law of diminishing marginal utility:
A) as the consumption of a particular good increases, marginal utility increases.
B) as the consumption of a particular good increases, marginal utility decreases.
C) refers to the idea that total utility is negative.
D) B and C are correct
What is the largest category in local government spending?
A) education
B) public welfare
C) health and hospitals
D) fire protection
Daily Output of Japan and U.S.
Table 18.2
Refer to Table 18.2. Possible terms of trade between the U.S. and Japan are:
A) 1 stereo for 8 tractors.
B) 1 tractor for 3 stereos.
C) 1 stereo for 1/3 tractor.
D) 1 tractor for 1/3 stereo.
The monopolistically competitive firm in Figure 11.5 will produce where:
Figure 11.5
A) MC= MR.
B) MC=D.
C) MR= D.
D) all of the above
Suppose that in a month the price of a gallon of milk increases from $2 to $2.50. At the
same time, the quantity of gallons of milk demanded decreases from 100 to 80. The
price elasticity of demand for gallons of milk (calculated using the midpoint formula) is
approximately:
A) 0.11.
B) 0.2.
C) 1.
D) 1.2.
If a restaurant charges seniors one price and nonseniors another price, the restaurant
will apply the marginal principle:
A) twice, because the two groups have different demands.
B) once, because the two groups have the same demands.
C) only to the seniors because they consume the most.
D) by averaging the price charged to both groups.
Recall the application about baseball pitchers. If professional pitchers who are a free
agent and are more likely to get injured switch teams more often and others who are
less likely to get injured don’t. why is the puzzling feature of the free-agent market for
baseball players explained by asymmetric information?
A) The coaches, physicians, and trainers from the player’s original team have interacted
with the player for years and know if player is likely to suffer from injuries. The new
team has the same information because they can check the league records.
B) The coaches, physicians, and trainers from the player’s original team have interacted
with the player on a daily basis for years and know if player is likely to suffer from
injuries. The new team has less information because they have not interacted with the
player daily.
C) The coaches, physicians, and trainers from the player’s new team have not interacted
with the player on a daily basis for years and don’t know if player is likely to suffer
from injuries but have the league records that contain all the information that the new
team needs to determine if the pitcher is a lemon or plum.
D) There is a perfect amount of information for the pitcher and the new team.
Refer to Table 8.3. If the firm hires seven workers, then:
Table 8.3
A) marginal product is negative.
B) marginal product is less than one.
C) total product is negative.
D) marginal product is equal to three.
At her current consumption level, Betty gets twice as much marginal utility from an
additional bottle of soda as she does from an additional bottle of water. If she is
maximizing her utility, and the price of soda is $2 per bottle then the price of a bottle of
water must be:
A) $8.00.
B) $1.00.
C) $2.00.
D) $4.00.
Recall the Application about the increase in Chinese demand for pecans to answer
the following question(s). Between 2006 and 2009, Chinese imports of U.S. pecans
increased from 9 million pounds per year to 88 million pounds per year, and as a
result of the increase in demand, the equilibrium price increased by about 50
percent. The increase in demand was caused in part by widespread reports in the
Chinese media extolling the health benefits of pecans.
Recall the Application. The equilibrium price of pecans increased because the demand
curve shifted:
A) up and to the right.
B) down and to the left.
C) down and to the right.
D) up and to the left.
Figure 4.3 illustrates the demand for tacos. Assume tacos are an inferior good. An
increase in income would bring about a movement from:
A) point a to point b.
B) point c to point b.
C) D2 to D1.
D) D0 to D1.
Refer to Figure 18.3. Livonia has a comparative advantage in the production of:
Figure 18.3
A) pogo sticks.
B) scooters.
C) both scooters and pogo sticks.
D) neither scooters nor pogo sticks.
When the market does NOT produce the most efficient outcomes, it is known as:
A) market failure.
B) corruption.
C) fraud.
D) capitalism.
A government report that makes working in a particular industry more attractive to
workers will most likely ________ the number of workers hired in that industry, and
________ the wage paid to those workers.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Recall the Application about the appropriate amount for a cigarette tax to answer
the following question(s).
Recall the Application. A recent study concludes that to fully offset the present bias that
underlies the decision to smoke, the appropriate tax is approximately ________ per
pack of cigarettes.
A) $3
B) $7
C) $11
D) $19
If the market for used computers has only lemons (low-quality computers) then the
market:
A) is an example of a thick market.
B) suffers from an adverse selection problem.
C) is a type of monopoly.
D) must be monopolistically competitive.
Recall the Application about the increase in Chinese demand for pecans to answer
the following question(s). Between 2006 and 2009, Chinese imports of U.S. pecans
increased from 9 million pounds per year to 88 million pounds per year, and as a
result of the increase in demand, the equilibrium price increased by about 50
percent. The increase in demand was caused in part by widespread reports in the
Chinese media extolling the health benefits of pecans.
Recall the Application. If consumer income in China increased and as a result the
demand for pecans decreased, this would indicate that in China, pecans would be
considered ________ goods.
A) normal
B) inferior
C) substitute
D) complementary
In less-developed countries the ________ effect leads to ________.
A) input-substitution; labor intensive production
B) input-substitution; mechanized production
C) output effect; labor intensive production
D) input effect; mechanized production
In the Iowa Gambling Task, scientists have found that on average, subjects begin to
respond to gut feelings and stop drawing cards from an unfavorable deck after drawing:
A) 5 cards.
B) 10 cards.
C) 50 cards.
D) 60 cards.
Insurance policies in which each firm pays a different price for medical insurance
depending upon the past medical bills of the firm’s employees are based upon a(n):
A) experience rating.
B) community rating.
C) asymmetric information rating.
D) adverse selection rating.
Additional Application
For many years North Carolina-based Krispy Kreme Doughnuts have been the choice
of many Southerners. But now rival Dunkin’ Donuts is working on changing the way
Southerners expect a doughnut to taste. The Northeastern-based Dunkin’ Donuts has
plans to become a national brand in the next 15 years by tripling the number of stores in
the U.S. The difference is in the doughnut itself. Krispy Kreme offers a glazed, hot,
lighter doughnut while the product of Dunkin’ Donuts can be described as “thicker and
cakier.” Do consumers notice the difference? Rosemary Evans from Alabama states,
“Dunkin’ Donuts just don’t have much flavor.” And Jack Lehnhart from Ohio says
Krispy Kremes are “wax doughnuts.” As the size of the industry grows the efforts to
differentiate each product remain strong. Dunkin’ Donuts focuses on coffee and baked
goods as important components in its long term business plan. When discussing the two
companies and their approaches to success, the brand officer at Dunkin’ Donuts
succinctly said, “We’re very different.” Just take note of the different ways they spell the
product they produce!
Source: Beth Rucker, “Dunkin’ Donuts Raids Krispy Kreme’s Turf,” October 22, 2006,
http://hosted.ap.org/dynamic/stories/D/DONUT_WARS, accessed 10/30/2006.
As more Dunkin’ Donuts outlets open in the areas where Krispy Kreme has been
dominant, market prices will ________ and profits will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Peaches and cream are complements. When the price of peaches rises and the price of
raw milk (used to make cream) rises:
A) the equilibrium price of cream rises and the equilibrium quantity of cream might rise
or fall.
B) the equilibrium price of cream falls and the equilibrium quantity of cream might rise
or fall.
C) the equilibrium price of cream falls and the equilibrium quantity of cream rises.
D) the equilibrium quantity of cream falls and the equilibrium price of cream might rise
or fall.