Archives: Quiz

What relationship exists between marginal revenue and the elasticity of demand? Use this relationship to explain how a monopoly can increase its profit if demand is inelastic. If the Open Range Field is currently a common property and the government […]

In a competitive labor market, a monopoly will tend to hire less labor than will a competitive firm. The income and substitution effect always go in opposite directions. Answer: F A temporary increase in the supply of current goods will […]

Higher fixed costs may cause a firm to shut down its operations but will not otherwise affect its production and pricing decisions. The term price as used in microeconomics refers to the absolute price of a commodity. Answer: F Assigning […]

When surveyed regarding the potential benefit of a public good, consumers will tend to underestimate their benefit from consumers the good. Cleantown and Grimyville are identical except for the inferior air quality in Grimyville. All potential residents have identical tastes. […]

Suppose the marginal value of bread in terms of wine is 1/2 bottle of wine per loaf of bread, while the relative price of bread in terms of wine is 1/4 bottle of wine per loaf of bread. Explain how […]

The copycat game does not have a pure strategy Nash Equilibrium. Mike’s Mealbarn is a competitive firm in the hot dog stand business. How will each of the following affect the short-run demand for labor at Mike’s? Answer: What is […]

If the price of good X goes up and the price of good Y goes down, then it is possible for a. The person is better off than before. b. The person is worse off than before. c. The person […]

Suppose leisure is on the horizontal axis and dollars are on the vertical axis in the consumer-choice diagram. What happens to the budget line when a head tax is imposed? a. The budget line shifts inward, but it may become […]

Expedia.com’s sale of discount airline tickets to those willing to travel any hour of a day on any airline is an example of third degree price discrimination. Common Property II The following questions refer to the accompanying diagram, which shows […]

Mexico and Japan The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only […]

Game Matrix IV The following questions refer to the game matrix below. Player A can play the strategies UP and DOWN and Player B can play the strategies LEFT and RIGHT. The Nash Equilibrium for the game is a. UP, […]

Demand and Supply for Grapes The following tables show the demand and supply for grapes. Demand is uncertain, with D1 and D2 each occurring 50% of the time. Suppliers must base their decisions on the expected price and must sell […]

What does it mean to say that a firm has been made liable? a. The firm is legally responsible to compensate other parties for damage. b. The firm has begun to treat any external costs as private costs. c. The […]

A market failure occurs when a. shortages or surpluses of some good cannot be eliminated. b. a private market cannot provide a good in socially efficient quantities. c. consumers’ surplus falls to zero. d. property is privately owned and people […]

Budget Lines The following questions refer to the following diagram, which shows the budget lines faced by a consumer last year and this year. The only situation where we can conclude that this consumer’s tastes must have changed is when […]

A consumer’s demand curve for pizza is identical to his total value curve for pizza. Current and Future Consumption The following questions refer to the accompanying diagram, which shows a consumer’s choice between current and future consumption. The diagram shows […]

If a person’s income rises and they do not increase their consumption, we can conclude that a. the good is not inferior. b. their income elasticity of demand is zero. c. the good is not normal. d. no conclusions can […]

Which of the following is not true in the long-run? a. There are no variable costs. b. There are no fixed costs. c. Total costs equal variable costs. d. Identical firms will make zero profits. The term prisoners’ dilemma a. […]

The short-run demand curve for labor for a firm in any type of market for its output coincides with a. the upward sloping portion of the marginal revenue product curve. b. the downward sloping portion of the marginal revenue product […]

Game Matrix II The following questions refer to the game matrix below. Player A can play the strategies “High” and “Low,” and Player B can play the strategies “Odd” and “Even.” Which outcomes in this game are Pareto optimal? a. […]

Supply and Demand The following questions refer to the accompanying graph, which shows the supply and demand for military service. Suppose the government drafts Q0 persons into the army and pays them the wage w1. In this situation, the area […]

The primary criterion used to analyze the desirability of outcomes in Economics is a. sustainability b. equity. c. predictability. d. efficiency. In the indifference curve-budget line model of labor supply, a. labor is measured along the horizontal axis and leisure […]

A common property is a. both nonrivalrous and nonexcludable. b. nonrivalrous, but not nonexcludable. c. nonexcludable, but not nonrivalrous. d. either nonrivalrous or nonexcludable, but not both. When silk is shipped from China to Atlanta, transportation costs will make the […]

The term “tragedy of the commons” is used to describe a. overpricing of computer software by Microsoft. b. an increase in rents when air quality in a community improves. c. the difficulty in obtaining honest evaluations of public goods. d. […]

Cap and Trade is a system aimed at correcting for externalities by a. imposing taxes. b. establishing tradable permits. c. placing quotas on specific firm’s output. d. limiting exports. If firms must pay full liability for accidents plus punitive damages, […]

The marginal rate of technical substitution of labor for capital (MRTSLK) tends to be higher a. the larger the quantity of capital already employed. b. the lower the quantity of capital already employed. c. when a firm is choosing baskets […]

A competitive firm will shut down its operations in the short run when the market price falls below its a. marginal revenue. b. marginal cost. c. average cost. d. average variable cost. Which of the following will cause equilibrium output […]

Tax Problem. Consider a perfectly competitive market were demand is Q = 100 – P and Supply isQ = P – 10. In the absence of any government intervention (e.g. taxes or price controls), the market equilibrium is a. P […]

In the Battle of the Sexes game, a. Fred and Ethel are best off choosing the activity they prefer. b. Fred is better off attending the opera with Ethel than having Ethel attend the boxing match with him. c. Ethel […]

The price elasticity of demand for potatoes is estimated to be -1.3, and the quantity demanded of potatoes is 3,000 bushels per week. In this situation, a 4% rise in the price of potatoes would reduce the quantity demanded by […]

Variable Cost of Production The following questions refer to the following table which shows a firm’s variable costs of production. If the firm instead has $15 in fixed costs, the average cost of the third unit of output is a. […]

An illiquid bank can become insolvent when it: A) refuses to make promised payments. B) sells additional stock to obtain funds. C) sells assets at fire-sale prices to meet liquidity demands. D) can extend the due dates of its liabilities. […]

Other things being equal, all of the following government policies are likely to increase national saving except: A) decreasing taxes on savings accounts. B) running a budget deficit. C) running a budget surplus. D) retiring part of the national debt. […]

According to the Solow model, persistently rising living standards can only be explained by: A) population growth. B) capital accumulation. C) saving rates. D) technological progress. Exhibit: Risk Premium (Exhibit: Risk Premium) A small open economy with a floating exchange […]

Falling house prices generate widespread insolvency of financial institutions by: A) reducing the value of collateral assets. B) reducing the value of liabilities. C) increasing the value of assets. D) increasing capital. If real money balances enter the IS“LM model […]

In the classical model with fixed income, a reduction in the government budget deficit will lead to a: A) higher real interest rate. B) lower real interest rate. C) higher level of output. D) lower level of output. Economic booms […]

Alan Blinder’s survey of firms found that the typical firm adjusts its prices: A) more than once a week. B) about once a month. C) once or twice a year. D) less than once a year. The tax multiplier indicates […]

Explain what type of wage rigidity is most likely to affect the unemployment rates of the following types of workers: a. workers with low marginal labor productivity, b. workers in the construction trades, such as plumbers and electricians, c. workers […]

The natural rate of unemployment in the United States since 1950 has averaged between ______ and ______ percent. A) 0; 1 B) 1; 3 C) 5; 6 D) 10; 15 The simple investment function shows that investment ______ as ______ […]

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except: A) offset the depreciation of existing capital. B) provide capital for new workers. […]

If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall: A) 0 percent. B) 8 percent. C) 10 percent. D) 12 […]

Nominal GDP measures the value of goods and services in ______ prices, while real GDP measures the value of goods and services in ______ prices. A) foreign; domestic B) domestic; foreign C) current; constant D) constant; current All of the […]

People use money as a unit of account when they: A) hold money to transfer purchasing power into the future. B) use money as a measure of economic transactions. C) use money to buy goods and services. D) hold money […]

Measuring the size of government debt is complicated by all of the following factors except: A) inflation. B) uncounted liabilities. C) capital assets of the government. D) failure of the Office of Management and Budget to disclose figures on capital […]

Which of the following is not a proposed explanation for that fact that Americans on average work 20 percent more hours than the typical resident of western Europe? A) Europeans have more taste for leisure than Americans. B) Americans have […]

Holding other factors constant, legislation to cut taxes in an open economy will: A) increase national saving and lead to a trade surplus. B) increase national saving and lead to a trade deficit. C) reduce national saving and lead to […]

In instances of hyperinflation, the delays involved in collecting taxes often result in: A) decreased real government tax revenue. B) large capital gains for creditors. C) higher shoeleather costs of inflation. D) higher ex ante real interest rates. Assume that […]

Other things being equal, the ratio of Tobin’s q will rise if: A) stock prices fall. B) the replacement cost of capital rises. C) more capital is installed. D) stock prices rise. When the central bank lowers its target inflation […]

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $0.50 in 2009. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in […]

The number of households interviewed in the monthly employment survey of the U.S. Bureau of Labor Statistics is approximately: A) 6,000. B) 60,000. C) 600,000. D) 6 million. A capital rental firm makes a profit if the ______ is ______ […]