Any movement along the production possibilities frontier involves the production of
a. more of both goods
b. more of one good and less of the other
c. less of both goods
d. more resources
e. better technology
Exhibit 7-2
Given the information in Exhibit 7-2, what is the marginal product of the third unit of
labor?
a. 45 pairs of shoes
b. 25 pairs of shoes
c. 15 pairs of shoes
d. $45
e. $25
When people are assumed to implicitly calculate the costs and benefits of an activity to
decide if it is worthwhile, they are behaving
a. rationally
b. self-interestedly
c. greedily
d. marginally
e. expectantly
Firms can earn economic profits even in the long run if
a. they charge the highest price possible
b. there is a cost-reducing technological change
c. there are significant barriers to entry
d. marginal revenue equals marginal cost
e. price is less than average variable cost at all rates of output
The opportunity cost of college is the same for all students who are receiving
full-tuition scholarships.
a. True
b. False
The income effect of a decrease in the price of potatoes (an inferior good) is a(n)
a. decrease in the demand for potatoes
b. decrease in the quantity demanded of potatoes
c. increase in the demand for potatoes
d. increase in the quantity demanded of potatoes
e. new demand curve because everything else is no longer constant
]The demand curve faced by a perfectly competitive firm
a. is the market demand curve
b. slopes downward
c. is perfectly elastic
d. is vertical
e. rises when market supply rises
A firm produces in a perfectly competitive market and hires labor in a perfectly
competitive labor market. The firm hires four workers, the marginal product of the
fourth worker is 4, and the wage rate is $40. The firm produces 100 units of the product,
which sell for a price of $10. This firm is
a. maximizing profit when it hires four workers
b. not maximizing profit and should hire more workers to increase profit
c. not maximizing profit and should hire fewer workers to increase profit
d. not maximizing profit when it produces 100 units of the product and should increase
production to increase profit
e. not maximizing profit when it produces 100 units of the product and should decrease
production to increase profit
Which of the following would not cause the demand curve for peaches to shift?
a. an increase in the price of apricots
b. a decrease in the price of nectarines
c. an increase in the price of peaches
d. a change in preferences for peaches
e. a decrease in the income of peach buyers
Economic profit is defined as
a. total revenue minus implicit costs
b. total revenue plus explicit costs
c. total revenue plus implicit costs
d. wages plus interest minus rent
e. total revenue minus implicit and explicit costs
The academic dean at Esoteric University hires a philosopher to teach one of the 12
sections of a course called “Why Nerf Balls Ingest Hair.” Which of the following is
true?
a. The academic dean is the agent; the philosopher is the principal.
b. The academic dean is the agent; the students are the principals.
c. The academic dean is the principal; the students are the agents.
d. The philosopher is the principal to both the academic dean and the students.
e. The philosopher is an agent to both the academic dean and the students.
In order to qualify for unemployment insurance and worker’s compensation, a person
must have
a. paid taxes the previous year
b. an employment record
c. a family of four
d. food stamps
e. a driver’s license
The marginal benefit of acquiring additional information tends to
a. be zero if the marginal cost of information is zero
b. increase and then decrease as additional information is obtained
c. be smaller, the smaller the quantity of information the individual already has obtained
d. increase as additional information is obtained
e. decrease as additional information is obtained
The market demand curve for loanable funds represents the demand by
a. domestic firms
b. domestic firms and domestic households
c. domestic firms, households, and governments
d. domestic firms and domestic governments
e. domestic firms, households, governments, and the rest of the world
Used car dealers are able to make a profit by buying used cars at a low price and selling
them at a higher price because
a. they sell lemons
b. they can take advantage of unsuspecting consumers
c. they are attempting to maximize their profits
d. the transaction costs to some buyers is less than it would be without the used car
dealers
e. there are no transaction costs associated with the process of buying a used car
The slope of a vertical line is
a. infinitely large
b. zero
c. positive
d. negative
e. infinitely small
If the cross-price elasticity of demand between two goods is 0,
a. a price change for one good will be exactly offset by a price change for the other
b. neither demand curve would shift following a change in the price of one of the goods
c. there is no income effect between the two goods
d. the demand for each good is price inelastic
e. the demand for each good is price elastic
If fewer U.S. dollars are needed to buy a Swiss franc, then
a. Swiss goods become relatively more expensive to U.S. residents
b. U.S. residents buy fewer francs
c. U.S. goods become relatively cheaper to Swiss residents
d. U.S. residents buy more Swiss goods
e. U.S. residents supply more francs
The optimal level of air quality
a. is always zero
b. occurs when the marginal social cost of air quality exceeds the marginal social
benefit
c. is greater if the marginal social benefit curve of air quality shifts rightward
d. occurs when positive externalities are eliminated
e. eliminates the common pool problem
In the absence of government intervention, the marginal social cost of pollution
abatement would equal its marginal social benefit.
a. True
b. False
When a monopolist practices perfect price discrimination,
a. consumers receive no consumer surplus
b. there is allocative inefficiency
c. there is a deadweight loss
d. profit is lower than for the nondiscriminating monopolist
e. total revenue is less than for the nondiscriminating monopolist
Which of the following is not an example of moral hazard?
a. People with health insurance take poor care of themselves.
b. Reckless drivers own the safest cars.
c. Banks make risky loans because deposit insurance protects them.
d. People give more to charity just because it is tax deductible.
e. A quarterback holds on to the ball longer before passing because he has a good
offensive line.
The World Trade Organization (WTO)
a. became, in 1995, the institutionalized and more comprehensive successor to the
General Agreement on Tariffs and Trade (GATT)
b. was established in 1947 to reduce trade restrictions among 23 member countries
c. was established in 1980 to oppose and counteract the policies of the General
Agreement on Tariffs and Trade (GATT)
d. meets in different countries every few years to analyze each country’s trade policies
and restrictions
e. was an international treaty that expired in 1990
Exhibit 7-17
From the firm’s perspective, point e in Exhibit 7-17 is preferable to which other point?
a. Point a because e represents the same output at lower cost.
b. Point a because e represents higher output at the same cost.
c. Point b because e represents the same output at lower cost.
d. Point b because e represents higher output at the same cost.
e. Point b because e represents higher output at lower cost.
If the Herfindahl index is the same in two industries, we can conclude that
a. the number of firms in each industry is the same
b. there must not be the same number of firms in the two industries
c. the sum of the squared market shares of all firms is the same in the two industries
d. there must be an identical distribution of market share among firms in the two
industries
e. there must be a different distribution of market share among firms in the two
industries
A profit-maximizing firm will hire an additional unit of a resource as long as the
a. marginal product of the resource is greater than the marginal resource cost
b. marginal product of the resource is less than the marginal resource cost
c. marginal revenue product of the resource is greater than the marginal resource cost
d. marginal revenue product of the resource is less than the marginal resource cost
e. price of the resource is less than the marginal resource cost
Exhibit 10-11
At the profit-maximizing output level, total cost for the firm in Exhibit 10-11 is
a. $5,200
b. $4,000
c. $3,600
d. $5,600
e. impossible to determine
Exhibit 20-5
Suppose that U.S. tastes for British goods increase. Then, in Exhibit 20-5
a. the supply curve shifts from S1 to S2
b. the supply curve shifts from S2 to S1
c. the demand curve shifts from D2 to D1
d. the demand curve shifts from D1 to D2
e. both demand and supply shift to the right
Exhibit 13-2
Suppose that the data in Exhibit 13-2 describes a shop that sells photocopies at $0.10
each. At this price, the marginal revenue product of the fourth machine is
a. $0.10
b. $0.40
c. $4
d. $40
e. $400
Production of Hollywood movies is an increasing cost industry. Which of the following
contributes the most to this condition?
a. The demand for carpenters to build sets
b. The demand for painters to paint the theaters
c. The demand for printers to print tickets
d. The cost of advertising for the shows
e. The cost of hiring known box-office superstars