Steven consumes staples and paper clips. He is maximizing his utility in consumption
of both goods. The price of staples rises. After the change in price Steven should
consume _____ staples and _____ paper clips.
A) more; fewer
B) more; more
C) fewer; more
D) fewer; fewer
The price elasticity of demand for ground beef has been estimated to be 1.0. If mad cow
disease strikes the United States and a large percentage of the cattle are removed from
the market, how will that affect total expenditures on ground beef, all other things
equal?
A) Total expenditures will remain unchanged.
B) Total expenditures will fall by more than 1%.
C) Demand will fall by 1%, but total expenditures will fall by less than 1%.
D) Total expenditures will rise.
Faced with two goods to buy, diamonds and silver, a utility-maximizing individual will
buy according to the statement that:
A) the price of diamonds equals the price of silver.
B) marginal utility of diamonds equals marginal utility of silver.
C) the price of diamonds divided by marginal utility of silver equals the price of silver
divided by marginal utility of diamonds.
D) marginal utility of diamonds divided by price of diamonds equals marginal utility of
silver divided by price of silver.
(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans
Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is
$18. How much is producer surplus at the Saint’s profit-maximizing output?
A) $24
B) $18
C) $12
D) $9
Along a given upward-sloping supply curve, a decrease in price will cause producer
surplus to:
A) increase.
B) decrease.
C) stay the same.
D) We cannot determine what producer surplus will do without information about the
demand curve.
When a market is in equilibrium:
A) a person could do better if he or she did something different.
B) people have exploited all opportunities to make themselves better off.
C) government has directed the market in such a way as to achieve this point.
D) markets are not working efficiently.
If the supply and demand curves intersect at $14, then any price below that would result
in:
A) a shortage.
B) a surplus.
C) equilibrium.
D) an increase in demand.
Which of the following statements is TRUE?
A) When the income elasticity of demand is positive, the good is inferior.
B) When the income elasticity of demand is negative, the good is normal.
C) Income elasticity of demand measures how much the quantity demanded of a good
is affected by changes in consumers’ incomes.
D) Income elasticity of demand measures the effect of the change in one good’s price on
the quantity demanded of the other good.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $250 and
the price per bushel of corn is $20. Laura should hire _____ workers to maximize
profits.
A) one
B) two
C) four
D) seven
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $130 and
the price per bushel of corn is $10. Suppose Laura acquires more land and as a result
the output that can be produced by any given number of workers doubles. Laura should
hire _____ workers to maximize profits.
A) four
B) five
C) six
D) seven
Among the reasons for a welfare state is a desire to alleviate income inequality and to:
A) achieve economic equality for all households.
B) eliminate poverty.
C) alleviate economic insecurity.
D) maintain economic fairness.
Figure: A Firm’s Cost Curves
(Figure: A Firm’s Cost Curves) Look at the figure A Firm’s Cost Curves. The curve
labeled V represents the firm’s _____ cost curve.
A) total
B) average total
C) marginal
D) average variable
Which of the following is a normative statement?
A) International trade leads to expanded consumption opportunities.
B) Higher expenditures on health care will reduce infant mortality rates.
C) To improve our economic security, we should reduce our dependence on oil imports.
D) Increased defense spending will lead to higher budget deficits.
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. If
Ben buys one fewer pumpkin and Diane sells one more pumpkin than in equilibrium,
total surplus will _____ by _____.
A) decrease; $3
B) decrease; $2
C) increase; $18
D) increase; $3
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for
Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each
firm can produce gadgets with no marginal cost or fixed cost. If industry output is 350
gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to
increase output by 100, Margaret’s profit will be _____ and Ray’s profit will be _____.
A) $1,750; $1,250
B) $1,250; $1,250
C) $1,400; $1,000
D) $1,050; $1,050
Figure: The Market for Blue Jeans
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify deadweight loss?
A) a + b + c
B) b + d
C) c + e
D) d + e + f
Recently the government considered adding an excise tax on CDs that can be used to
record music and CD players that can record discs. If this tax were enacted, the most
likely effect would be:
A) that consumers would pay a higher price and producers would sell fewer of these
CDs and CD players than before the tax.
B) no change in consumption or the prices paid by consumers of these CDs and CD
players.
C) that consumers would pay a lower price and producers would receive a higher price
for these CDs and CD players than before the tax.
D) an increase in economic activity due to the tax.
Figure: Firms in Monopolistic Competition
(Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic
Competition. There will be a negative economic profit (or an economic loss) earned at
the profit-maximizing price _____ in panel _____.
A) G; (A)
B) H; (B)
C) I; (C)
D) J; (C)
George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and
coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, which of the
following consumption bundles lies BEYOND George’s budget constraint?
A) 10C and 25D
B) 15C and 15D
C) 5C and 10D
D) 5C and 5D
Figure: Marginal Benefits and Marginal Costs
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores (MB) but subtracts points from accounting scores (MC). At four hours of study,
Claudia will maximize her benefit from study time because:
A) MB > MC.
B) MB = 20 and MC = 5.
C) the difference between total benefits and total costs is maximized.
D) sunk costs are minimized.
(Table: Marginal Analysis of Sweatshirt Production I) Look at the table Marginal
Analysis of Sweatshirt Production I. The optimal quantity of sweatshirts to produce is:
A) two.
B) three.
C) four.
D) five.
Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can
go offshore, lower a crab pot, and harvest king crab. This common resource will likely
be _____ because the marginal social cost of harvesting crabs _____ the market price of
crab.
A) overfished; is equal to
B) overfished; is less than
C) efficiently fished; is equal to
D) overfished; exceeds
Phil’s Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per
print. If the market wage rises to $70:
A) the demand for labor increases.
B) the demand for labor decreases.
C) the quantity demanded of labor increases, but the demand for labor curve does not
shift.
D) the quantity demanded of labor decreases, but the demand for labor curve does not
shift.
If the United States placed larger tariffs on all textiles, domestic _____ surplus would
_____.
A) producer; increase
B) consumer; increase
C) total; increase
D) producer; decrease
Monopolistic competitors often hire a celebrity spokesperson to advertise their product.
One reason such advertising works is that:
A) celebrities are better informed about the relative merits of different products than the
rest of us.
B) consumers assume that the celebrity has researched the product and that the claims
being made on his or her behalf are true.
C) the fact that a firm is willing to pay the large fees associated with celebrity
advertising signals consumers that it is a major company and that it is therefore likely to
have a reliable product.
D) celebrities encourage other firms to enter the industry.
The profit-maximizing level of output for a perfectly competitive firm in the short run
occurs where _____ equals _____.
A) marginal cost; price
B) marginal revenue; price
C) total revenue; total cost
D) average revenue; average total cost
Florida schools offered cash bonuses to students who scored high on the state’s
standardized exams. The cash bonuses are an example of this economic principle:
A) Resources are scarce.
B) The real cost of something is what you must give up to get it.
C) There are gains from trade.
D) People usually take advantage of opportunities to make themselves better off.