Say that Janie is exhibiting the endowment effect as she makes a decision. She is:
A. deciding on the basis of sunk costs.
B. valuing what she already has more.
C. consuming on the basis of endorsements by celebrities.
D. buying something she can’t really afford right now because she expects to have
savings in the future.
Answer:
New developments in computer monitors have made flat panel LCD’s cheaper and
better than the older CRT models. Given that monitors can contain as much as 8 pounds
of lead, disposing of the old monitors creates a:
A. negative externality.
B. positive externality.
C. neutral externality.
D. limited liability.
Answer:
Which of the following is an example of price discrimination?
A. Some retailers hire fewer men than women to sell women’s perfume on the shop
floor.
B. Grocery stores sell 12-ounce bottles of Coke for less than they sell liter bottles.
C. When the price of land rises, landowners do not increase the quantity of land
supplied.
D. Peak-fare prices are higher than non-peak-fare prices.
Answer:
Taking explicit account of a rival’s expected response to a decision you are making is
called:
A. economic decision making.
B. monopolistic decision making.
C. strategic decision making.
D. competitive decision making.
Answer:
A monopoly firm is different from a competitive firm in that:
A. there are many substitutes for a monopolist’s product whereas there are no
substitutes for a competitive firm’s product.
B. a monopolist’s demand curve is perfectly inelastic whereas a competitive firm’s
demand curve is perfectly elastic.
C. a monopolist can influence market price whereas a competitive firm cannot.
D. a competitive firm has a U-shaped average cost curve whereas a monopolist does
not.
Answer:
Although many legal music download sites started up, because of the technology, only a
few have survived. It is likely that online music firms:
A. have diseconomies of scale.
B. have U-shaped short-run cost curves.
C. have decreasing long-run average cost curves.
D. face downward-sloping demand curves.
Answer:
Refer to the graph shown. Producer surplus that is lost to society as a result of
monopoly is:
A. $2.5.
B. $5.
C. $15.625.
D. $16.875.
Answer:
Refer to the graph shown. Assuming that the industry operates under conditions of
perfect competition and that the firms seek to maximize profits, this firm will:
A. produce 800 square feet of construction per month in the short run.
B. produce 1,000 square feet of construction per month in the short run.
C. produce 1,200 square feet of construction in the short run.
D. incur economic losses in the short run.
Answer:
A primary goal of the World Bank is to:
A. channel low-interest loans to developing countries to foster economic growth.
B. work out repayment plans for developing countries with large international debt.
C. finance private investment projects around the world.
D. negotiate trade agreements between nations.
Answer:
What is 25 percent of 200?
A. 8.
B. 25.
C. 50.
D. 100.
Answer:
Refer to the graph shown. If consumers have a $15 co-pay, total expenditure on the
product by both the third party and the consumer will equal:
A. $125.
B. $375.
C. $750.
D. $1,125.
Answer:
It is not uncommon for businesses to pay contingent bonuses that depend on
performance. Contingent bonuses are an example of what the text calls:
A. X-inefficiency.
B. an incentive-compatible contract.
C. a winner-take-all contract.
D. a network externality.
Answer:
Warren Buffett feared gaining weight. To keep himself from eating too much, he gave
unsigned checks for $10,000 to his children, promising to sign them if he exceeded his
desired weight by a certain date. This is an example of:
A. an abductive decision
B. sunk costs.
C. an inductive decision.
D. a precommitment strategy.
Answer:
Refer to the graph shown, which shows the demand and supply for a new vaccine
against the common cold. Once vaccinated, a person cannot catch a cold or give a cold
to someone else. If government does not subsidize the production of this vaccine:
A. the number of workers hired to produce the vaccine will be less than the socially
efficient level.
B. the firm producing the vaccine will use too much capital in producing the vaccine.
C. the vaccine will be overproduced because consumers will not take into account the
fact that many of their neighbors and co-workers will consume the vaccine.
D. no positive externality can be created.
Answer:
Refer to the graph below of a payoff matrix.
Firm A and firm B each have 50 percent of the market:
A. only if they both set price equal to $10.
B. only if they both set price equal to $8.
C. if they each charge the same price.
D. if one firm charges $10 and the other charges $8.
Answer:
The United States passes a 50 percent tax on imports of Danish cheese. This is an
example of:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
Answer:
Refer to the table shown. The marginal cost of producing the fourth unit of output is:
A. $2.
B. $3.
C. $4.
D. $5.
Answer:
Refer to the graph shown. If the monopoly firm maximizes profit, there will be a
welfare loss equal to:
A. $2.5.
B. $5.
C. $7.5.
D. $10.
Answer:
In the short run:
A. all inputs are variable.
B. firms can use any input combination they want.
C. firms can choose among all possible production techniques.
D. some inputs are fixed.
Answer:
The democratic system of one person/one vote:
A. necessarily leads to a political system that favors the poor because there are more
poor voters than there are rich voters.
B. necessarily leads to a political system that favors the poor because the poor organize
themselves into groups that can deliver votes to politicians.
C. does not necessarily lead to a political system that favors the poor, because many of
the poor do not vote, believing that their individual votes cannot make a difference.
D. does not necessarily lead to a political system that favors the poor because many of
the poor are illiterate and unable to vote.
Answer:
Refer to the graph shown. Total utility is at its maximum at point:
A. A.
B. B.
C. C.
D. D.
Answer:
Refer to the graph shown. Assuming that the industry operates under conditions of
perfect competition:
A. it is currently in equilibrium.
B. new firms will soon enter the industry.
C. existing firms will leave the industry.
D. firms in the industry are earning zero economic profit.
Answer:
Suppose marginal cost is constant and equal to 100 and market demand is given by Qd
= 20 – 1/10P. A profit-maximizing monopolist will set price equal to:
A. 10.
B. 100.
C. 150.
D. 300.
Answer:
An entrepreneur would be least likely to develop a product if expected average total
cost is:
A. $50 and expected price is $75.
B. $60 and expected price is $65.
C. $65 and expected price is $40.
D. $50 and expected price is $50.
Answer:
For workers in tradable sectors such as manufacturing, the effect of globalization has
been:
A. to push wages up relative to those in nontradable sectors such as government or
service workers.
B. to cause greater upward mobility for those workers while reducing downward
mobility.
C. to push wages down or leave them unemployed.
D. to reduce unemployment in this group while leaving wage rates about the same.
Answer:
A market has the following characteristics: There is strategic pricing, output is
somewhat restricted, there is interdependent decision making, and some long-run
economic profits are possible. This market is:
A. a monopoly.
B. an oligopoly.
C. monopolistically competitive.
D. perfectly competitive.
Answer:
When output is 20, fixed costs are $100 and variable costs are $400. When output rises
to 21, fixed costs are $100 and variable costs are $450. This implies that the marginal
cost of the last unit of output equals:
A. $25.
B. $50.
C. $500.
D. $550.
Answer:
If the government imposes an excise tax on a good equal to $5 per unit and the demand
curve for this good is vertical, the supply of this good will shift:
A. upward and the price will increase by $5.
B. upward and the price will increase by less than $5.
C. downward and the price will decrease by $5.
D. downward and the price will decrease by less than $5.
Answer:
Tom is maximizing utility by buying three packs of bubble gum and four packages of
Skittles. Given diminishing marginal utility, if the price of Skittles rises, the principle of
rational choice tells us that Tom will buy:
A. more Skittles, raising the opportunity cost of not consuming Skittles.
B. fewer Skittles, raising the opportunity cost of not consuming Skittles.
C. more Skittles, lowering the opportunity cost of not consuming Skittles.
D. fewer Skittles, lowering the opportunity cost of not consuming Skittles.
Answer:
In the former USSR, state planners decided what was to be produced. They passed
orders down to factories, allocating raw materials, workers, and other factors of
production to them. This is an example of (a):
A. corporation.
B. command economy.
C. market economy.
D. government as a referee.
Answer:
The marginal benefit of going to a movie during the week is currently $6 for you.
Assume that the $4 price of going to the movies measures its marginal cost. Following
the economic decision rule, you will:
A. continue going to movies until the marginal benefit of doing so falls to zero.
B. choose not to go to any movies during the week.
C. continue going to movies until the marginal benefit of doing so falls below $4.
D. not be able to enjoy a net gain from going to the movies during the week.
Answer: