Refer to Table 7.2. The marginal utility of the fourth slice of pie per day is:
Table 7.1
A) 20.
B) 75.
C) 15.
D) 3.
The price of apples increases from $1 to $1.10. At the same time, the quantity of apples
demanded decreases from 100 to 90. The price elasticity of demand for apples
(calculated using the initial value formula) is:
A) 0.02.
B) 0.9.
C) 1.
D) 1.1.
If the population increases, what will this do for the market demand for most products?
A) no change
B) decrease
C) increase
D) none of the above
In Figure 5.1 the demand curve along which price elasticity of demand changes as you
move along it is on graph:
A) A.
B) B.
C) C.
D) D.
Suppose that the elasticity of demand for chocolate is 3.0 and price decreases by 20%.
By what percentage will quantity demanded for chocolate increase?
A) 20%
B) 30%
C) 60%
D) 200%
For which of the following goods would the imposition of a tax most likely improve the
efficiency of the market outcome?
A) the production of a good with external benefits
B) the production of a rival good with no external costs
C) the production of a good with external costs
D) the production of a public good
The pollution tax in Figure 16.4:
Figure 16.4
A) reduces equilibrium output.
B) reduces pollution associated with the production of the good.
C) raises equilibrium price.
D) all of the above
A market where individual firms cannot affect the market price of their good is most
likely:
A) a monopoly market.
B) an oligopoly market.
C) a monopolistically competitive market.
D) a perfectly competitive market.
Recall the Application about the short-run and long-run elasticity of supply of
milk to answer the following question(s). According to the Application, the price
elasticity of supply of milk over a one-year period is about 0.10, and in the long
run, the price elasticity of supply is 2.5.
Recall the Application. If the price of milk increases by 100 percent, then in the long
run, the quantity of milk supplied will rise by:
A) 2.5 percent.
B) 25 percent.
C) 250 percent.
D) 2,500 percent.
In making stock buy or sell recommendations, most stock analysts use microeconomics:
A) to evaluate the merits of public policies.
B) to understand markets and predict changes.
C) to understand marginal changes in the macroeconomy.
D) to make managerial and personal decisions.
From the Application, we can infer that if the government stops intervening in the
market, then the:
A) prices will drop.
B) prices will rise.
C) the supply will decrease.
D) the demand will increase.
Refer to Figure 4.1, which shows Molly’s and Ryan’s individual demand curves for
compact discs per month. Assuming Molly and Ryan are the only consumers in the
market, what is the market quantity demanded at a price of $3?
A) 6
B) 9
C) 15
D) 20
Which of the following explains why the world market may support only one or two
firms worldwide?
A) large economies of scale
B) comparative advantage
C) learning by doing
D) constant returns to scale
In the short run, the firm should shut down when:
A) price is equal to the average total cost of production.
B) price is less than the minimum of the average variable cost of production.
C) price is equal to the minimum of the marginal cost of production.
D) price is equal to the minimum of the average total cost of production.
Which of the following is NOT an artificial barrier to entry?
A) a patent
B) government franchise
C) large economies of scale
D) government licensing
Refer to Figure 6.6, which shows a market for taxi medallions. If the number of taxi
licenses is reduced from to , the total surplus of the market is represented by:
A) area ABF.
B) area ABF + area BCFG.
C) area ABF + area BCFG + area CDGH.
D) area ABF + area BCFG + area CDGH + area DEH.
Corn is used to produce tortillas. If the price of corn increases:
A) the demand for tortillas increases.
B) the demand for tortillas decreases.
C) the supply of tortillas increases.
D) the supply of tortillas decreases.
If sellers have an expectation of higher future prices:
A) the current supply of that good will decrease.
B) the current demand for that good will increase.
C) the current supply of that good will increase.
D) the current demand for that good will decrease.
Printing presses, forklifts and assembly plants are examples of which factor of
production?
A) physical capital
B) human capital
C) entrepreneurship
D) labor
Figure 4.6 illustrates a set of supply and demand curves for a product. When the
economy moves from point B to point A, there has been:
Figure 4.6
A) an increase in supply and an increase in demand.
B) an decrease in supply and an decrease in quantity demanded.
C) an increase in quantity supplied and an increase in demand.
D) an increase in quantity supplied and an increase in quantity demanded.
Suppose the price of a package of guitar strings is $5. If Mark’s marginal cost of
producing that package of guitar strings is $5, his producer surplus from that package of
guitar strings is:
A) $0.
B) $1.
C) $2.
D) $3.
Markets perform all of the following functions EXCEPT:
A) determining the prices of goods and services.
B) helping firms decide what to produce.
C) helping firms decide how to produce.
D) determining why a firm chooses to produce a certain product.
If the five-firm concentration ratio in an oligopolistic industry is 100 percent and each
firm has an equal share of the market, the Herfindahl-Hirschman Index is:
A) 10,000.
B) 2,000.
C) 2,500.
D) 400.
Figure 4.3 illustrates the demand for tacos. A decrease in price of tacos would bring
about a movement from:
A) point a to point c.
B) point c to point a.
C) D2 to D0.
D) D0 to D2.
If the price of hotdogs are expected to increase in the future, then:
A) the current demand for hotdogs will increase.
B) the current demand for hotdogs will decrease.
C) the current quantity demanded for hotdogs will decrease.
D) the current quantity demanded for hotdogs will increase.
Refer to Figure 6.3. On this graph, area BCEO represents:
A) producer surplus.
B) total surplus.
C) firm profits.
D) total revenues.
Additional Application
The 2005-2006 Florida citrus harvest has been tallied and is over $1 billion. This is the
highest dollar amount since the 1999-2000 season. This year’s production was 3%
greater than last year, which was dramatically reduced due to three hurricanes that
struck the state last year. While the overall production increase was relatively small, the
prices for all types of citrus increased significantly. On the wholesale level oranges
alone realized a 56% price increase over the previous year after experiencing a 1.3%
decrease from last year. One explanation of this increase was Hurricane Wilma striking
Florida in October 2005 and causing a reduction in this year’s supply of citrus. The
higher citrus prices this year resulted in a 38% increase in revenues to growers over the
previous year.
How can the increased revenues to the citrus producers be explained? The law of
demand states if the price increases, the quantity demanded decreases. The concept of
price elasticity of demand explains that the percentage decrease in quantity demanded
may be greater than or less than the percentage increase in price. Is the demand for
citrus elastic or inelastic?
“States citrus crop tops $1 billion for first time in six years.” September 22, 2006.
palmbeachpost.com. Retrieved October 3, 2006, from http://www.palmbeachpost.com
Suppose the revenues from citrus increased by 38% and the price increased by 56%.
Calculate the percentage change in quantity demanded.
A) 68%
B) 21%
C) -21%
D) -68%
Which of the following is a way of controlling the quantity of a particular product?
A) rent control
B) price floor
C) business licenses
D) Either A or B is correct.
________ occurs when a firm cuts prices below production costs in a deliberate attempt
to drive competitors out of business.
A) Voracious dumping
B) Price discrimination
C) Predatory pricing
D) Deliberate dumping
Suppose that a new advertising campaign extolling the virtues of apple juice is
successful and a major freeze destroys half of the country’s apple crop. What happens to
the price and quantity of apple juice?
A) The equilibrium price of apple juice might rise or fall and the equilibrium quantity
of apple juice falls.
B) The equilibrium price of apple juice might rise or fall and the equilibrium quantity of
apple juice rises.
C) The equilibrium price of apple juice rises and the equilibrium quantity of apple juice
might rise or fall.
D) The equilibrium price of apple juice falls and the equilibrium quantity of apple juice
might rise or fall.
When the government provides a public good by taxing citizens and using tax money to
provide the good:
A) the result is efficient if the total value of the public good is greater than the cost of
providing it.
B) the result is inefficient because the government is an inefficient provider of goods
and services.
C) the result is inefficient because if it were efficient the good would have been
provided in a free market.
D) the result is efficient only if voters specifically agreed to provision of that good.
The application shows that high inflation results in fewer years to pay back student
loans because:
A) when inflation is high, the nominal value of the loan increases.
B) when inflation is high, the nominal value of wages decreases.
C) when inflation is high, the nominal value of the loan decreases.
D) when inflation is high, the nominal value of the wages decrease.
Suppose that a local gym can divide its customers into two groups with different price
elasticities of demand. Which of the following is true?
A) If a local gym. uses price discrimination, it will charge the lower price to the group
with the most price elastic demand.
B) If a local gym uses price discrimination, it will charge the higher price to the group
with the most price elastic demand.
C) Although the different groups have different price elasticities of demand, they have
the same willingness-to-pay for gym memberships.
D) Price discrimination will not benefit a local gym.
In Figure 8.4, the difference between total costs and variable cost is:
A) average total cost.
B) fixed cost.
C) total costs are positive when output is zero implying fixed costs.
D) all of the above.