Compare two situations. (A) A firm is not legally responsible for damages that result
from air pollution caused by its production of steel. (B) A firm is legally responsible for
damages that result from its production of steel. Ronald Coase argued that
A) bargaining between the firm and the victims of the air pollution caused by the firm
will result in little reduction of pollution in either situation (A) or (B) because the firm
has greater economic and political power than the victims.
B) bargaining between the firm and the victims of the air pollution caused by the firm
would lead to a greater reduction in pollution in situation (A) than situation (B).
C) bargaining between the firm and the victims of the air pollution caused by the firm
would lead to a smaller reduction in pollution in situation (A) than situation (B).
D) bargaining between the firm and the victims of the air pollution caused by the firm
would lead to an equal reduction in pollution in situation (A) and situation (B).
If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income
of $30,000, then over this range of income the tax is
A) regressive.
B) proportional.
C) progressive.
D) There is insufficient information to answer the question.
Figure 5-3
Refer to Figure 5-3. The efficient output level is
A) Qm.
B) Qn.
C) Qo.
D) Qo – Qm.
If the long-run average cost curve is U-shaped, the optimal scale of production from
society’s viewpoint is
A) the minimum efficient scale.
B) where maximum economic profit is earned by producers.
C) where firm profit is large enough to finance research and development.
D) one which guarantees economic profit.
When you buy at a low price in one market then sell at a higher price in another market
you are engaging in
A) odd pricing.
B) arbitrage.
C) an antitrust prohibited practice.
D) price discrimination.
Suppose there is no unemployment in the economy and society decides that it wants
more of one good. Which of the following statements is true?
A) It can only achieve this with an advance in technology.
B) It can increase output without giving up another good.
C) It can only achieve this with an increase in resource supplies.
D) It will have to give up production and consumption of some other good.
Figure 2-8
Figure 2-8 above shows the production possibilities frontier for Vidalia, a nation that
produces two goods, roses and orchids.
Refer to Figure 2-8. Suppose Vidalia is currently producing 120 dozen roses per
period. How many orchids is it also producing, assuming that resources are fully
utilized?
A) 20 dozen orchids
B) 32 dozen orchids
C) 44 dozen orchids
D) 68 dozen orchids
When an oligopoly market is in Nash equilibrium
A) firms have colluded to set their prices.
B) firms will not behave as profit maximizers.
C) a firm will not take into account the strategies of its rivals.
D) a firm will choose its best pricing strategy, given the strategies that it observes other
firms have taken.
A.C. Pigou argued that the government can deal with a positive externality in
consumption by giving consumers a subsidy equal to the value of the externality.
Table 16-2
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets
with demand schedules as shown in Table 16-2. The average cost of production is
constant at $2 per tube.
Refer to Table 16-2. What is the total revenue received from both markets combined?
A) $30
B) $34
C) $68
D) $70
Since 1972, the world price of oil has been largely determined by OPEC, which
controls about 75 percent of the world’s proven oil reserves. Since 1972 the price of oil
has
A) fluctuated. OPEC’s situation is an example of a prisoner’s dilemma.
B) risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil
too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is
illegal under international law.
C) steadily fallen through the 1970s, then risen continually in the years since then.
OPEC’s actions are an example of implicit collusion.
D) been tied by OPEC to the rate of inflation in the United States. If, for example, the
rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent
the next year.
Which of the following tax systems would help reduce income inequality the most?
A) a regressive tax system
B) a proportional tax system
C) a progressive tax system
D) a consumption tax system
Which of the following arguments could be made as evidence that the market for
cage-free eggs is perfectly competitive?
A) The U.S. Department of Agriculture has established standards for the labeling of
cage-free eggs.
B) Sales of cage-free eggs have increased at a rate of 20 percent per year.
C) As more farmers began selling cage-free eggs, the increase in supply has driven
down prices to the point where they just cover the cost of production.
D) The profits earned by farmers who sell cage-free eggs have continued to grow,
despite the increasing number of farmers entering this market.
Table 2-6
Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either
devote their time to making bracelets or making necklaces.
Refer to Table 2-6. Which of the following statements is true?
A) Haley has a comparative advantage in making both products.
B) Serena has a comparative advantage in making both products.
C) Haley has a comparative advantage in making bracelets and Serena in making
necklaces.
D) Haley has a comparative advantage in making necklaces and Serena in making
bracelets.
Absolute advantage is
A) the ability to produce more of a good or service than competitors when using the
same amount of resources.
B) the ability to produce higher quality goods compared to one’s competitors.
C) the ability to produce a good or service at a higher opportunity cost than one’s
competitors.
D) the ability to produce more of a good or service than competitors that have more
resources.
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. What is Scotland’s opportunity cost of producing one guitar?
A) 25 motorcycles
B) 4 motorcycles
C) 12 motorcycles
D) 16 motorcycles
Traditionally, Wall Street investment banks had been organized as partnerships, but by
2000 they had converted to being publicly traded corporations. As partnerships, the
principle-agent problem is ________, but as publicly traded corporations, the
principal-agent problem is often ________.
A) increased; more severe
B) increased; less severe
C) reduced; more severe
D) reduced; less severe
Figure 16-5
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a
two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the
monopoly price. What is the revenue collected from the fixed fee portion of the price?
A) $10,240
B) $7,870
C) $2,560
D) $1,440
Figure 4-10
Refer to Figure 4-10. Suppose the market is initially in equilibrium at price P1 and then
the government imposes a tax on every unit sold. Which of the following statements
best describes the impact of the tax?
A) The consumer will bear a smaller share of the tax burden if the demand curve is D1.
B) The consumer’s share of the tax burden is the same whether the demand curve is D1
or D2.
C) The consumer will bear a smaller share of the tax burden if the demand curve is D2.
D) The consumer will bear the entire burden of the tax if the demand curve is D2 and
the producer will bear the entire burden of the tax if the demand curve is D1.
________ is a situation in which a good or service is produced at the lowest possible
cost.
A) Allocative efficiency
B) Productive efficiency
C) Equity
D) Optimal marginalism
A market economy benefits from market power
A) if the majority of the population are entrepreneurs.
B) if firms with market power do research and development with the profits earned.
C) if market power gets so bad the government creates public enterprises.
D) under no circumstances.
Suppose that a price-discriminating producer divides its market into two segments. If
the firm sells its product at a price of $34 in the market segment with relatively
less-elastic customer demand, the price in the market segment with more-elastic
customer demand will be
A) greater than $34.
B) less than $34.
C) less than marginal revenue in that market segment.
D) equal to marginal revenue in that market segment.
Some economists have argued that path dependence and switching costs can lead to
market failure. Which of the following is an example of this argument?
A) Costly celebrity endorsements lead many consumers to buy a product even though it
is more expensive or less effective than a product that is not endorsed by a celebrity.
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3,000
even though he would not have paid $3,000 for a ticket if he had not won the lottery.
C) While playing the ultimate game, an allocator decides to share $20 equally with a
recipient rather than keep the $20 for herself.
D) VHS video recorders became more popular with consumers than Sony Betamax
recorders even though the Betamax recorders embodied a superior technology.
Figure 11-12
Refer to Figure 11-12. The movement from isoquant T to isoquant U depicts
A) a change in preferences with regards to input usage.
B) an increase in the cost of production.
C) an increase in output.
D) an increase in labor usage holding capital and output constant.
A corporation’s management
A) owns the corporation.
B) hires the board of directors.
C) is liable for the corporation’s debts.
D) operates and controls a corporation in its day-to-day activities.
During an economic expansion as consumer incomes rise, holding everything else
constant,
A) the demand for most goods, except luxuries, will rise.
B) the demand for luxuries will rise while the demand for inferior goods will fall.
C) the demand for luxuries and inferior goods will rise.
D) the prices of luxuries will fall while the prices of inferior goods will rise.
Consider the market for nurses in a given city. In each of the following cases, explain
what happens to the equilibrium wage rate and the quantity of nurses hired.
a. One of the major hospitals in the city closes.
b. A record number of students graduate with bachelor’s degrees in nursing.
c. Traditionally, nursing is a field that attracts women. However, changes in access to
education and to the labor force participation rate by women have led to a greater
demand for the services of women in a wide range of occupations. The demand for
nurses, however, does not change.
d. Advances in medical technology reduce the amount of time physicians must spend
with patients in intensive care and increase the time that nurses spend with patients.
Which of the following is a factor of production that generally is fixed in the short run?
A) raw materials
B) labor
C) a factory building
D) water
Figure 5-13
Figure 5-13 illustrates the market for gasoline before and after the government imposes
a tax to bring about the efficient level of gasoline production.
Refer to Figure 5-13. The market equilibrium quantity of gasoline is ________ million
gallons per month.
A) 20
B) 32
C) 48
D) 56
Figure 3-4
Refer to Figure 3-4. At a price of $10, how many units will be sold?
A) 200
B) 400
C) 600
D) 800
Figure 4-4
Refer to Figure 4-4. The figure above represents the market for pecans. Assume that
this is a competitive market. If the price of pecans is $3, what changes in the market
would result in an economically efficient output?
A) The price would increase, the quantity supplied would decrease, and the quantity
demanded would increase.
B) The quantity supplied would increase, the quantity demanded would decrease, and
the equilibrium price would increase.
C) The price would increase, the demand would decrease, and the supply would
increase.
D) The price would increase, the quantity demanded would decrease, and the quantity
supplied would increase.
Which type of business has the most government rules and regulations affecting it?
A) sole proprietorship
B) partnership
C) corporation
D) They all have the same set of rules and regulations affecting them.
The “Buy American” provision in the 2009 stimulus package required that stimulus
money be spent only on U.S.-made goods, effectively acting as a quota of zero imports
when stimulus money was being spent. In the market for steel, the “Buy American”
provision would ________ the price of steel in the United States and ________ the
quantity of steel demanded in the United States.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Which of the following statements is true?
A) An increase in supply causes a change in equilibrium price; the change in price does
not cause a further change in demand or supply.
B) A decrease in supply causes equilibrium price to rise; the increase in price then
results in a decrease in demand.
C) If both demand and supply increase there must be an increase in equilibrium price;
equilibrium quantity may either increase or decrease.
D) If demand decreases and supply increases one cannot determine if equilibrium price
will increase or decrease without knowing which change is greater.
Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in
the industry charges $12. Which of the following will happen?
A) The firm will sell more output than its competitors.
B) The firm’s revenue will increase.
C) The firm will not sell any output.
D) The firm’s profits will increase.