The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.
The long run equilibrium quantity in this industry is
A. 300.
B. 500.
C. 700.
D. more than 700.
Suppose that there are three power-generating plants, all of which generate emissions.
The table summarizes the cost of emission reduction for each firm given five different
levels of pollution:
In the absence of either government regulation or private negotiation, total expenditure
on pollution abatement will be $__________, and total pollution will be __________.
A. 0; 4 tons
B. 0; 12 tons
C. 59; 9 tons
D. 44; 8 tons
If the annual real interest rate on a 10-year inflation-protected bond equals 1.5 percent
and the annual nominal rate of return on a 10-year bond without inflation protection is
4.2 percent, what average rate of inflation over the ten years would make holders of
inflation-protected bonds and holders of bonds without inflation protection equally well
off?
A. 1.5%
B. 2.7%
C. 4.2%
D. 5.7%
Assume that the average male wage rate is 20% higher than the average female wage
rate. One can infer that
A. this is evidence of discrimination.
B. employers undervalue female employees.
C. customers overvalue male employers.
D. this is evidence of discrimination only if all factors affecting productivity are equal.
When a perfect competitor sells additional units, __________, and when a monopolist
sells additional units, ___________.
A. total revenue always rises; total revenue may rise, fall, or remain unchanged
B. total revenue remains unchanged; total revenue always rises
C. marginal revenue stays the same; marginal revenue rises
D. total revenue always rises; total revenue always falls
Taylor has the following assets and liabilities:
What is the value of Taylor’s assets?
A. $308,000
B. $416,000
C. $419,000
D. $422,000
Refer to the figure above. The socially optimal equilibrium would yield consumer
surplus equal to the area _______.
A. LEI
B. GCEI
C. 0GI
D. GJI
Three different voters demand curves for a public park are shown on the graphs below.
Suppose a wealthy citizen donates 2 acres of land to the city and land costs $20 per
acre. The optimal park size is
A. 2 acres.
B. 4 acres.
C. 6 acres.
D. 8 acres.
When the government runs a budget deficit, it makes up the difference by:
A. issuing bonds.
B. paying down outstanding debt.
C. increasing transfer payments.
D. increasing public saving.
Suppose that all workers value a safe job $2,000/year more than a risky job. The cost of
safety is $700 per worker. Firms currently pay $35,000 per year to workers, without any
effort to improve safety.
Suppose new firms began to offer workers $34,000 per year and safer jobs. The total
benefit to workers of the existing firms’ offer is __________ and the benefit of the new
firms’ offer is __________.
A. $0; $1,000
B. $1,000; $1,000 00
C. $33,000; $34,000
D. $35,000; $36,000
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in
concert on Saturday. (Assume that you would not have been willing to pay any more
than $35 for this concert.) Your boss called and she is looking for someone to cover a
shift on Saturday at the same time as the concert. You will have to work 4 hours and she
will pay you time and a half, which is $9/hr.
Should you go to the concert instead of working Saturday?
A. Yes, your benefit is more than your cost.
B. No, your benefit is less than your cost.
C. Yes, your benefit is equal to your cost.
D. No, because there are no benefits in the concert.
If the price of cheese falls by one percent and the quantity demanded rises by 3 percent,
then the price elasticity of demand for cheese has a value of:
A. 30.
B. 0.30.
C. 0.333.
D. 3.
Which of the following events will increase the domestic real interest rate in an open
economy?
A. An increase in domestic saving.
B. A decrease in the domestic saving.
C. A decrease in the perceived riskiness of investing in the domestic economy.
D. An increase in net capital inflow.
When prices are predetermined, the level of output that equals planned aggregate
expenditure is called ______ output.
A. the natural rate of
B. potential
C. short-run equilibrium
D. induced
The responsiveness of quantity demanded for one good when the price of a different
good changes is measured by the:
A. price elasticity of demand.
B. income elasticity of demand.
C. price elasticity of supply.
D. cross-price elasticity of demand.
Refer to the figure above. If the market is unregulated, the value of the total economic
surplus is:
A. $20.
B. $32.
C. $48.
D. $84.
Taylor’s marginal utility from watching movies and marginal utility from eating out
each month in utils are represented in the following table. Taylor spends exactly $100
every month on these two forms of entertainment, and the price per movie is $10 and
price per dinner is $20.
If Taylor watches 2 movies a month, Taylor will eat out _____ times per month, and
have marginal utility per dollar of _____ from movies and _______ from eating out.
A. 3; 5; 6
B. 2; 5; 7
C. 4; 5; 5
D. 4; 4; 6
Both the perfectly competitive firm and the monopolist find that:
A. price and marginal revenue are the same.
B. they can sell all they want to at the market price.
C. it is best to expand production until the benefits and costs of the last unit produced
are equal.
D. price is less than marginal revenue.
A collective good is one that is
A. to a degree nonrival but is excludable.
B. rival but to a degree nonexcludable.
C. consumed by more than one person.
D. to a degree both nonrival and nonexcludable.
Most political scientists and economists agree that ______ is detrimental to economic
growth.
A. a set of well-defined property rights
B. the free and open exchange of ideas
C. political instability
D. a just-in-time inventory system
According to the textbook, government price controls fail because:
A. they are not enforced.
B. legislation cannot repeal basic economic motives.
C. bureaucrats lack accurate market data.
D. firms ignore the restrictions.
Refer to the figure above. If the price of Food is $10 and the price of Rooms is $40,
then the rational spending rule predicts _____ units of Food and ______ Rooms will be
purchased.
A. 1; 4
B. 3; 2
C. 4; 4
D. 2; 3
The following payoff matrix shows the outcomes for the US and the USSR from relying
on conventional weapons or atomic weapons. The percentages refer to the fraction of
the population that would die if a war occurred under the two weapons strategies.
Assume the payoff matrix is for 1945, shortly after the US had demonstrated the
effectiveness of the atomic bomb in World War II, i.e., the example begins in the upper
right cell where USA has atomic weapons and the USSR has only conventional
weapons.
Refer to the information given above. When the United States demonstrated its nuclear
capability in the 1940’s, the predictable result was:
A. the arms race ended.
B. the USSR responded by developing chemical weapons.
C. the USSR developed its nuclear capability.
D. the United States decided to refrain from development.
Barriers to entry are _____, and one effect of barriers to entry is to _____ the ability of
the invisible hand to allocate resources efficiently.
A. uncommon today due to antitrust enforcement; improve
B. forces that limit new firms from joining an industry; reduce
C. forces that limit new firms from joining an industry; irrelevant to
D. uncommon today due to antitrust enforcement; reduce
If net taxes paid by households increase:
A. private saving will decrease.
B. private saving will increase.
C. public saving will decrease.
D. transfer payments to households will decrease.
If Leslie can produce two pairs of pants in an hour while Eva can make one pair an
hour, then it must be the case that:
A. Leslie has a comparative advantage.
B. Leslie has an absolute advantage.
C. Eva has a comparative advantage.
D. Leslie has both comparative and absolute advantage.
Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby
river. While the firm benefits from dumping waste into the river, the waste reduces the
fish and bird reproduction. This causes damage to local fishermen and bird watchers. At
a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird
watchers will not suffer any damage. The relevant gains (in thousands of dollars) and
losses for the three parties are listed below.
Refer to the information given above. Local fishermen and bird watchers would be
willing to compensate Erie Textiles ______ for operating with a filter.
A. up to $310 thousand dollars
B. no more than $235 thousand dollars
C. no more than $75 thousand dollars
D. nothing
Suppose Marion and Gab must both choose between two jobs, a safe job that pays
$250/week and a risky job that pays $300/week. The value of safety to each is
$75/week. Each also values having a higher income than the other at $75/week. Having
the same job (income) as the other means no change in satisfaction. The following
payoff matrix shows the income (satisfaction) each would get based on the other
decision.
When Marion chooses the safe job, Gab will get more satisfaction by choosing the ____
and when Marion chooses the risky job, Gab will get more satisfaction by choosing the
_____.
A. risky job; risky job
B. risky job; safe job
C. safe job; risky job
D. safe job; safe job
The chart below describes the short run productivity of workers at Paper Pushers Inc.,
an office support firm that has no variable costs other than labor.
Because productivity at Paper Pushers displays ______ the firm should ______
A. diminishing marginal productivity; hire as few workers as possible.
B. constant marginal productivity; hire as many workers as it can.
C. diminishing marginal productivity; hire workers only if VMP is greater than or equal
to the product price.
D. diminishing marginal productivity; hire workers only if VMP is greater than or equal
to the workers’ wage.
Sellers tend to offer _______ for sale as price increases, and so the supply curve is
______ sloping.
A. goods; not
B. more; downward
C. less; upward
D. more; upward
Arthur is an unskilled worker who is currently unemployed. He has been offered a job
that pays $40 a day, but he is currently receiving unemployment insurance benefits
equal to $50 a day, so he chooses not to accept the job and to continue looking for a
better job. Arthur is ______ unemployed.
A. frictionally
B. structurally
C. cyclically
D. not
Refer to the table above. According to the data, Pat has an absolute advantage in:
A. the production of pizza.
B. neither the production of pizza nor the delivery of pizza.
C. delivering pizza.
D. both the production of pizza and the delivery of pizza.
If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2,
then what is velocity if the money stock equals 2,000?
A. 2
B. 2.5
C. 10
D. 5