After learning about indifference curves, Sandy realizes that her marginal rate of
substitution of grapes for cheese is 2. Since the price of cheese is $3 and the price of
grapes is $1, Sandy:
A) should buy more grapes and less cheese.
B) should buy more cheese and fewer grapes.
C) is maximizing her utility.
D) is on her highest possible indifference curve.
Which of the following goods is most likely a common resource?
A) the Super Bowl
B) a public park
C) a pair of pants
D) the fire department
Which of the following is a common resource?
A) a public beach with free access
B) seats on an airplane
C) a highway to which access is granted only to those who pay a specified toll
D) a city sewer system
When a factory closes, why does it spell bad news for the local restaurants?
A) Sales taxes are likely to increase.
B) Unemployed factory workers have lower incomes and are less likely to dine out.
C) Unemployed factory workers are eligible for government unemployment benefits.
D) The opportunity cost of dining out has fallen.
The pricing in monopoly prevents some mutually beneficial trades. The value of these
unrealized mutually beneficial trades is called:
A) sunk costs.
B) opportunity costs.
C) deadweight loss.
D) inequity.
The financial meltdown of 2008″2009:
A) was accurately predicted by an economic model.
B) was due to excessive investment in Internet companies.
C) was the result of the breakup of the European Union.
D) resulted partially from a faulty economic model.
Whenever human activity generates a concentration of a substance in the environment
sufficient to cause harm to living things, it is called:
A) a free good.
B) an external shock.
C) a result of human greed.
D) pollution.
A principle suggesting that people with more income or wealth should pay more taxes
is the _____ principle.
A) ability-to-pay
B) proportional tax
C) lump-sum tax
D) benefits received
The amount by which an additional unit of an activity increases total benefit is:
A) net benefit.
B) marginal benefit.
C) marginal cost.
D) utility.
(Table: Producer Surplus) Look at the table Producer Surplus. If the tickets to The Nutty
Nutcracker are free and there is no other market for tickets, the total producer surplus
for the five students is:
A) $276.
B) $100.
C) $74.
D) $0.
A decrease in the price of eggs will result in:
A) an increase in the demand for eggs.
B) an increase in the supply of eggs.
C) a shift in the supply curve for eggs.
D) a movement along the demand curve for eggs.
Which of the following statements is FALSE?
A) Efficiency exists when an economy realizes the maximum possible gains from trade
given the available resources.
B) If an economy is efficient, it is possible to make only a few people better off without
reducing other individuals’ economic welfare.
C) Economic efficiency exists when all opportunities to make people better off have
been fully exploited.
D) Markets usually lead to efficiency.
Figure: Consumer and Capital Goods
(Figure: Consumer and Capital Goods)
Look at the figure Consumer and Capital Goods. If the economy is operating at point Y
and its relevant production possibility frontier is curve 1:
A) the economy is at full employment and is efficient.
B) the economy is less than fully employed.
C) the economy is not efficient.
D) economic growth is not possible in the future.
A very large museum could accommodate many more visitors than it does without
reducing the enjoyment of the visitors if it did not charge such a high price for
admission. Visits to the museum are a(n):
A) private good.
B) public good.
C) common resource.
D) artificially scarce good.
Domingo has total wealth of $500,000 composed of a house worth $100,000 and
$400,000 in cash. He keeps the cash in a safe deposit box, so that it is completely safe.
However, there is a 10% chance that his house will burn down and be worth nothing
and a 90% chance that nothing will happen to it. Domingo buys insurance guaranteeing
that his house will be restored to its original condition should anything happen to it. The
insurance premium is $2,000. Consequently (assuming other things remain unchanged),
his future:
A) expected wealth is $480,000.
B) wealth is $500,000 for sure.
C) expected wealth is $490,000.
D) wealth is $498,000 for sure.
People may be uninsured for all of the following reasons EXCEPT that:
A) their employer does not provide health insurance.
B) they are too old to qualify for health insurance.
C) they are relatively healthy and choose to save their money rather than buy insurance.
D) they are unemployed and can’t afford to purchase insurance.
Perfect competition is characterized by:
A) rivalry in advertising.
B) fierce quality competition.
C) the inability of any one firm to influence price.
D) widely recognized brands.
A market failure occurs when:
A) some people are able to buy many more goods than other people are.
B) the individual’s pursuit of self-interest means some people will not be able to buy all
of the goods they need.
C) the individual’s pursuit of self-interest makes the society worse off.
D) while pursuing their self-interest, some people may make a mistakefor example,
they may regret buying a particular car.
Suppose the GoSports pennant monopoly is broken up and the pennant industry
becomes perfectly competitive. We would expect the _____ to increase and _____ to
decrease after the breakup.
A) producer surplus; consumer surplus and total surplus
B) consumer surplus; producer surplus and total surplus
C) consumer surplus and total surplus; producer surplus
D) producer surplus and total surplus; consumer surplus
The cross-price elasticity of demand of complementary goods is:
A) less than 0.
B) equal to 0.
C) greater than 0.
D) between 0 and 1.
Factors of production are different from inputs in that factors of production:
A) can be used over and over again, but inputs cannot.
B) can be used only once, whereas an input can be used over and over again.
C) refer only to labor, while inputs refer to machinery.
D) encompass only land and other natural factors, while inputs are ingredients.
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $6 and $8 is approximately:
A) 0.23.
B) 0.45.
C) 2.33.
D) 4.50.
(Table: Total Product of Labor at Debbie’s Bakery) Look at the table Total Product of
Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. Debbie must pay each
worker $30 per day. Now suppose the government imposes a minimum wage law that
all bakeries must pay no less than $50 per day. Debbie _____ employment from _____
workers to _____ worker(s).
A) reduces; six; one
B) reduces; six; five
C) reduces; six; four
D) increases; one; four
Two points on a nonlinear curve have coordinates given by (5, 15) and (17, 13). The
average slope of the curve between these points is:
A) “1/6.
B) “6.
C) 1/4.
D) 2.5.
Insurance companies attempt to minimize moral hazard by imposing:
A) premiums.
B) capital at risk.
C) adverse selection.
D) deductibles.
Since the price of walnuts increases as the demand for cashews increases, we can
assume that these two goods are:
A) unrelated.
B) superior.
C) inferior.
D) substitutes.
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty. Suppose
the probability that the sitcom does not make it to television is 50%, that it makes it to
television but is not the most viewed show in its time slot is 30%, and that it makes it to
television and is the most viewed show in its time slot is 20%. Given this information,
Norman, as a utility maximizer:
A) should keep his teaching job.
B) should quit his teaching job and go to Hollywood.
C) will be indifferent between leaving and staying, because his expected income is the
same whether he stays a teacher or moves to Hollywood.
D) will be indifferent between leaving and staying, because his expected total utility is
the same whether he stays a teacher or moves to Hollywood.