Figure: A Market in Equilibrium
(Figure: A Market in Equilibrium) Look at the figure A Market in Equilibrium. At the
equilibrium price, this market’s producer surplus is equal to the area:
A) ADI.
B) EHF.
C) AIF.
D) DIF.
A fair insurance policy is one whose premium:
A) is zero.
B) allows the insurance company to profit.
C) equals the expected value of the claims.
D) is higher as the probability of a claim decreases.
Figure: PPV
(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $40. If the cable company is a single-price monopoly, to
maximize profit it will sell _____ subscriptions and charge _____ per subscription.
A) 8; $20
B) 6; $40
C) 3; $70
D) 2; $80
Which of the following is an activity generating a negative externality?
A) You buy a new car, then discover it needs a new transmission.
B) Your next-door neighbor mows the lawn at 6 A.M.
C) The only two coffee shops in town conspire to raise prices.
D) After Jane bought health insurance, she began racing motorcycles on the weekends.
If your income increases and your consumption of bagels increases, other things equal,
bagels are considered:
A) a negative good.
B) a positive good.
C) an inferior good.
D) a normal good.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how much is Alex’s profit per unit at the profit-maximizing
output?
A) “$10.00
B) $10.00
C) $23.33
D) “$20.00
(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 deadweight loss at the Saint’s profit-maximizing output?
A) $24
B) $18
C) $12
D) $9
In a perfectly competitive market _____ are price takers.
A) only consumers
B) only producers
C) both producers and consumers
D) neither producers nor consumers
Figure: PPV
(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue
for a pay-per-view football game on cable TV. Assume that the marginal cost and
average cost are a constant $20. If the cable company is in a perfectly competitive
industry, how much is consumer surplus?
A) $0
B) $320
C) $160
D) $500
John consumes pizza and pasta, both normal goods. He is maximizing his utility in
consumption of both goods. The price of pasta rises. Assuming that diminishing
marginal utility applies to both goods, as he adjusts to this event, the marginal utility of
pizza will _____, and the marginal utility of pasta will _____.
A) rise; rise
B) fall; fall
C) fall; rise
D) rise; fall
If tax efficiency is the only goal, a tax system should be designed to minimize its:
A) burden.
B) administrative costs.
C) impact on the poor.
D) burden and its administrative costs.
Figure: Revenues, Costs, and Profits for Tomato Producers III
(Figure: Revenues, Costs, and Profits for Tomato Producers III) Look at the figure
Revenues, Costs, and Profits for Tomato Producers III. The market for tomatoes is
perfectly competitive. If market price of a bushel of tomatoes is $18, in the short run the
farmer’s profit-maximizing output is _____ bushels.
A) 2
B) 3
C) 4
D) 5
Figure: Correcting for Market Failure
(Figure: Correcting for Market Failure) There is an external cost in the market
illustrated in the figure Correcting for Market Failure. Economists argue that in an
unregulated private market, _____ is produced. In the figure, the supply curve (S1)
reflects _____ marginal cost.
A) too little; private
B) too much; private
C) too much; external
D) too little; external and private
Price discrimination can occur if:
A) there are many firms in the industry, all producing the same identical good.
B) producers are price takers.
C) all consumers have the same willingness to pay for the good.
D) the market structure is a monopolistic competition.
Figure: The Optimal Consumption Bundle
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. If the price of restaurant meals _____, then the optimal
consumption bundle will be on _____ indifference curve.
A) increases; a higher
B) decreases; a higher
C) decreases; a lower
D) increases; the same
Figure: The Market for Hybrid Cars
(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars.
What area represents consumer surplus if there is a binding price floor at P1?
A) a
B) a + b
C) a + b + c
D) a + b + d
Figure: MSB and MSC of Pollution
(Figure: MSB and MSC of Pollution) Look at the figure MSB and MSC of Pollution.
What level of pollution would be emitted in a market economy without government
regulation?
A) Q1
B) Q2
C) Q3
D) Q4
(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people
taking all-day rafting trips on the river. The marginal cost and average cost of each
lunch are a constant $4. If Joe is a monopolist, how many lunches will he produce in the
long run?
A) 0
B) 10
C) 20
D) 30
A leftward shift in the labor supply curve might result from:
A) people valuing leisure more highly.
B) people having less wealth.
C) increasing work opportunities for women and minorities.
D) an increase in the population.
(Table: The Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The
marginal utility for the second roll is:
A) 35.
B) 15.
C) 10.
D) 5.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $20 per hour,
the profit-maximizing quantity of labor is _____ workers.
A) two
B) four
C) six
D) eight
Figure and Table: The Budget Line
(Figure and Table: The Budget Line) Look at the figure and table The Budget Line.
_____ in the price of clams would rotate the budget line along the _____ axis _____ the
origin.
A) An increase; horizontal; toward
B) A decrease; horizontal; toward
C) An increase; vertical; toward
D) A decrease; vertical; away from
Suppose the town of Falls Valley has a mosquito problem. After a bad summer, the
town accountants explain that the marginal cost of providing one more treatment for
mosquito control is $100,000. The town should provide the additional mosquito control
only if the marginal:
A) benefit for any individual citizen is at least $100,000.
B) benefit for all individual citizens adds up to at least $100,000.
C) social cost of mosquito control is more than $100,000.
D) social cost of mosquito control is less than $100,000.
If a perfectly competitive firm is producing a quantity where MC > MR, then profit:
A) is maximized.
B) can be increased by increasing production.
C) can be increased by decreasing production.
D) can be increased by decreasing the price.
Figure: The Market for Melons in Russia II
(Figure: The Markets for Melons in Russia II) Look at the figure The Market for
Melons in Russia II. Suppose producers lobby effectively for the imposition of a tariff
that raises the world price from $10 to $15. Tariff revenue to the government will equal:
A) $150.
B) $200.
C) 75.
D) $5.
A monopoly responds to a decrease in marginal cost by _____ price and _____ output.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
The percentage of the population that falls below the poverty line is called the:
A) poor rate.
B) poverty rate.
C) homeless rate.
D) absolute number of people in poverty.
Figure: Kristin’s Budget Line
(Figure: Kristin’s Budget Line) Look at the figure Kristin’s Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3
each and the price of a cappuccino remains unchanged. As a result of this price change,
Kristin’s optimal consumption bundle changes, reflected by a decrease in the
consumption of both apples and cappuccinos. This suggests that:
A) apples are a Giffen good.
B) cappuccino is a Giffen good.
C) both apples and cappuccino are normal goods.
D) apples are an inferior good.
In terms of indifference curves, the optimal consumption bundle is determined by the:
A) intersection of a budget line and an indifference curve.
B) tangency of a budget line and an indifference curve.
C) tangency of a price consumption curve and an income consumption curve.
D) intersection of an income consumption curve and a price consumption curve.