question
The basic economic problem of all countries is the existence of
a) tax increases and budget deficits
b) limited resources and unlimited wants
c) unemployment and inflation
d) government and private industry
e) unions and monopoly firms
a) tax increases and budget deficits
b) limited resources and unlimited wants
c) unemployment and inflation
d) government and private industry
e) unions and monopoly firms
answer
b) limited resources and unlimited wants
question
Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr. Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs?
a) The wages of farm workers and movie theater employees increase.
b) A technological improvement results in less expensive and more efficient harvesting of corn.
c) The introduction of new fat-free potato chips provides new competition in the snack-food market.
d) The release of three summer movies sets records for movie attendance.
e) New government regulations force movie theaters to hire more security guards at each theater.
a) The wages of farm workers and movie theater employees increase.
b) A technological improvement results in less expensive and more efficient harvesting of corn.
c) The introduction of new fat-free potato chips provides new competition in the snack-food market.
d) The release of three summer movies sets records for movie attendance.
e) New government regulations force movie theaters to hire more security guards at each theater.
answer
d) The release of three summer movies sets records for movie attendance.
question
In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both the equilibrium price and quantity to decrease?
a) Supply curve shifts to the left; demand curve shifts to the right
b) Supply curve shifts to the left; demand curve has no shift
c) Supply curve shifts to the right; demand curve shifts to the right
d) Supply curve has no shift; demand curve shifts to the right
e) Supply curve has no shift; demand curve shifts to the left
a) Supply curve shifts to the left; demand curve shifts to the right
b) Supply curve shifts to the left; demand curve has no shift
c) Supply curve shifts to the right; demand curve shifts to the right
d) Supply curve has no shift; demand curve shifts to the right
e) Supply curve has no shift; demand curve shifts to the left
answer
e) Supply curve has no shift; demand curve shifts to the left
question
If bologna is an inferior good, which of the following must be true?
a) The demand curve for bologna is vertical.
b) The demand curve for bologna is horizontal.
c) An increase in the price of bologna will decrease the supply of bologna.
d) An increase in consumer income will decrease the demand for bologna.
e) A decrease in consumer income will decrease the supply of bologna.
a) The demand curve for bologna is vertical.
b) The demand curve for bologna is horizontal.
c) An increase in the price of bologna will decrease the supply of bologna.
d) An increase in consumer income will decrease the demand for bologna.
e) A decrease in consumer income will decrease the supply of bologna.
answer
d) An increase in consumer income will decrease the demand for bologna.
question
Which of the following events will cause the demand curve for hamburgers to shift to the right?
a) An increase in the price of pizza, a substitute for hamburgers
b) An increase in the price of french fries, a complement to hamburgers
c) An increase in the price of hamburgers
d) A decrease in the price of hamburgers
e) A decrease in the cost of producing hamburgers
a) An increase in the price of pizza, a substitute for hamburgers
b) An increase in the price of french fries, a complement to hamburgers
c) An increase in the price of hamburgers
d) A decrease in the price of hamburgers
e) A decrease in the cost of producing hamburgers
answer
a) An increase in the price of pizza, a substitute for hamburgers
question
(Look at Graph on #6-7 in Packet) The vertical distance CF represents the
a) total cost of producing Q1 units of output
b) average total cost of producing Q1 units of output
c) average fixed cost of producing Q1 units of output
d) average variable cost of producing Q1 units of output
e) amount of the firm's loss resulting from producing Q1 units of output
a) total cost of producing Q1 units of output
b) average total cost of producing Q1 units of output
c) average fixed cost of producing Q1 units of output
d) average variable cost of producing Q1 units of output
e) amount of the firm's loss resulting from producing Q1 units of output
answer
c) average fixed cost of producing Q1 units of output
question
(Look at Graph on #6-7 in Packet) If marginal revenue is equal to P1, all of the following statements are true EXCEPT:
a) Total revenue will equal total costs.
b) The firm will produce Q1 units of output.
c) The firm will produce the efficient level of output.
d) The firm will earn a normal profit.
e) The firm will increase production in the long run.
a) Total revenue will equal total costs.
b) The firm will produce Q1 units of output.
c) The firm will produce the efficient level of output.
d) The firm will earn a normal profit.
e) The firm will increase production in the long run.
answer
e) The firm will increase production in the long run.
question
Which of the following best describes a perfectly competitive market?
a) Many small firms producing differentiated products and facing significant barriers to entry
b) Many small firms producing homogenous product and facing significant barriers to entry
c) Many small firms producing a homogenous product and facing no significant barriers to entry
d) A single large firm producing a unique product and facing significant barriers to entry
e) A few large firms producing a differentiated product and facing no significant barriers to entry
a) Many small firms producing differentiated products and facing significant barriers to entry
b) Many small firms producing homogenous product and facing significant barriers to entry
c) Many small firms producing a homogenous product and facing no significant barriers to entry
d) A single large firm producing a unique product and facing significant barriers to entry
e) A few large firms producing a differentiated product and facing no significant barriers to entry
answer
c) Many small firms producing a homogenous product and facing no significant barriers to entry
question
Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?
a) Short-run price: increase; short-run industry output: increase; movement of firms: enter
b) Short-run price: increase; short-run industry output: decrease; movement of firms: exit
c) Short-run price: decrease; short-run industry output: increase; movement of firms: exit
d) Short-run price: decrease; short-run industry output: decrease; movement of firms: enter
e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit
a) Short-run price: increase; short-run industry output: increase; movement of firms: enter
b) Short-run price: increase; short-run industry output: decrease; movement of firms: exit
c) Short-run price: decrease; short-run industry output: increase; movement of firms: exit
d) Short-run price: decrease; short-run industry output: decrease; movement of firms: enter
e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit
answer
e) Short-run price: decrease; short-run industry output: decrease; movement of firms: exit
question
Which of the following statements is true for a monopolist at the profit-maximizing output level?
a) Price exceeds marginal revenue.
b) Marginal cost exceeds price.
c) Demand is price inelastic.
d) Price equals marginal cost, which equals average total cost.
e) The demand curve intersects the supply curve.
a) Price exceeds marginal revenue.
b) Marginal cost exceeds price.
c) Demand is price inelastic.
d) Price equals marginal cost, which equals average total cost.
e) The demand curve intersects the supply curve.
answer
a) Price exceeds marginal revenue.
question
If a normal good is produced in a competitive market, which of the following combinations of events could cause the price of the good to increase and the quantity to decrease?
a) An increase in the average income of consumers and an increase in the number of producing firms
b) An increase in the average income of consumers and an increase in the price of a variable input
c) An increase in the price of a substitute good an an increase in the number of producing firms
d) A decrease in the number of consumers and a decrease in the price of a variable input
e) A decrease in the average income of consumers and an increase in the number of producing firms
a) An increase in the average income of consumers and an increase in the number of producing firms
b) An increase in the average income of consumers and an increase in the price of a variable input
c) An increase in the price of a substitute good an an increase in the number of producing firms
d) A decrease in the number of consumers and a decrease in the price of a variable input
e) A decrease in the average income of consumers and an increase in the number of producing firms
answer
b) An increase in the average income of consumers and an increase in the price of a variable input
question
Monopolies are inefficient compared to perfectly competitive firms because monopolies
a) produce output with average total cost exceeding average revenue
b) produce more output than is socially desirable
c) charge a price less than marginal revenue
d) charge a price greater than marginal cost
e) charge a price less than average total cost
a) produce output with average total cost exceeding average revenue
b) produce more output than is socially desirable
c) charge a price less than marginal revenue
d) charge a price greater than marginal cost
e) charge a price less than average total cost
answer
d) charge a price greater than marginal cost
question
An individual's labor supply curve is derived from that person's preferences about the trade-off between income and
a) work
b) wealth
c) nominal wages
d) productivity
e) leisure
a) work
b) wealth
c) nominal wages
d) productivity
e) leisure
answer
e) leisure
question
A profit-maximizing firm will hire
a) labor until its wage rate equals its average revenue product
b) labor until its wage rate equals its marginal revenue product
c) labor until its wage rate equals the interest rate
d) capital until the interest rate equals the wage rate
e) capital until the interest rate exceeds the wage rate
a) labor until its wage rate equals its average revenue product
b) labor until its wage rate equals its marginal revenue product
c) labor until its wage rate equals the interest rate
d) capital until the interest rate equals the wage rate
e) capital until the interest rate exceeds the wage rate
answer
b) labor until its wage rate equals its marginal revenue product
question
A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the
a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner
b) marginal benefit from cleaner water is maximized
c) marginal benefit from cleaner water is zero
d) total benefit from cleaner water is equal to the total cost of making the water cleaner
e) total benefit from cleaner water is maximized
a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner
b) marginal benefit from cleaner water is maximized
c) marginal benefit from cleaner water is zero
d) total benefit from cleaner water is equal to the total cost of making the water cleaner
e) total benefit from cleaner water is maximized
answer
a) marginal benefit from cleaner water is equal to the marginal cost of making the water cleaner
question
All of the following are included in computing the opportunity cost of attending college EXCEPT
a) interest paid on student loans
b) wages the student gave up to attend college
c) money spent on college tuition
d) money spent on clothing expenses
e) money spent on books and supplies
a) interest paid on student loans
b) wages the student gave up to attend college
c) money spent on college tuition
d) money spent on clothing expenses
e) money spent on books and supplies
answer
d) money spent on clothing expenses
question
A country can consume beyond its present production possibilities curve when it
a) trades with other countries, thus taking advantage of different opportunity costs
b) reduces unemployment, thus increasing output
c) experiences decreasing opportunity costs
d) faces an upward-sloping production possibilities curve
e) faces a downward-sloping production possibilities curve
a) trades with other countries, thus taking advantage of different opportunity costs
b) reduces unemployment, thus increasing output
c) experiences decreasing opportunity costs
d) faces an upward-sloping production possibilities curve
e) faces a downward-sloping production possibilities curve
answer
a) trades with other countries, thus taking advantage of different opportunity costs
question
(Look at Graph in Packet for #18-19) In a competitive equilibrium, consumer surplus is the area of
a) UVZ
b) WYZ
c) RVUT
d) XVZY
e) 0YZS
a) UVZ
b) WYZ
c) RVUT
d) XVZY
e) 0YZS
answer
b) WYZ
question
If a price floor is set at X, the quantity demanded will
a) increase from 0R to 0S
b) increase from 0R to 0T
c) decrease from 0S to 0R
d) decrease from 0T to 0R
e) not change
a) increase from 0R to 0S
b) increase from 0R to 0T
c) decrease from 0S to 0R
d) decrease from 0T to 0R
e) not change
answer
c) decrease from 0S to 0R
question
Which of the following must be true if the revenues of what farmers increase when the price of wheat increases?
a) The supply of wheat is price elastic.
b) The supply of wheat is income elastic.
c) The supply of wheat is income inelastic.
d) The demand for wheat is price elastic.
e) The demand for wheat is price inelastic.
a) The supply of wheat is price elastic.
b) The supply of wheat is income elastic.
c) The supply of wheat is income inelastic.
d) The demand for wheat is price elastic.
e) The demand for wheat is price inelastic.
answer
e) The demand for wheat is price inelastic.
question
The demand curve for a normal good slopes down for which of the following reasons?
I. An increase in the price of the good induces consumers to purchase substitute products.
II. An increase in the price of the good reduces consumers' purchasing power.
III. An increase in the price of the good increase consumers' utility from consuming that good.
a) I only
b) II only
c) III only
d) I and II only
e) I and III only
I. An increase in the price of the good induces consumers to purchase substitute products.
II. An increase in the price of the good reduces consumers' purchasing power.
III. An increase in the price of the good increase consumers' utility from consuming that good.
a) I only
b) II only
c) III only
d) I and II only
e) I and III only
answer
d) I and II only
question
(Look at Graph on Packet for #22) The relationship in the graph above best illustrates the economic concept of
a) opportunity cost
b) diminishing marginal utility in consumption
c) diminishing marginal returns in production
d) production possibilities
e) comparative advantage
a) opportunity cost
b) diminishing marginal utility in consumption
c) diminishing marginal returns in production
d) production possibilities
e) comparative advantage
answer
c) diminishing marginal returns in production
question
Which of the following statements is true for a perfectly competitive firm but NOT true for a monopoly?
a) The firm's price is equal to its average revenue.
b) The firm cannot affect the market price for its good.
c) It is difficult for other firms to enter the industry.
d) The demand for the firm's product is unit elastic.
e) The firm must lower its price in order to sell more of its product.
a) The firm's price is equal to its average revenue.
b) The firm cannot affect the market price for its good.
c) It is difficult for other firms to enter the industry.
d) The demand for the firm's product is unit elastic.
e) The firm must lower its price in order to sell more of its product.
answer
b) The firm cannot affect the market price for its good.
question
If a perfectly competitive industry were monopolized without any changes in cost condition, the price and quantity produced would change in which of the following ways?
a) Price: increase; quantity: increase
b) Price: increase; quantity: decrease
c) Price: increase; quantity: may increase or decrease
d) Price: decrease; quantity: increase
e) Price: decrease; quantity: decrease
a) Price: increase; quantity: increase
b) Price: increase; quantity: decrease
c) Price: increase; quantity: may increase or decrease
d) Price: decrease; quantity: increase
e) Price: decrease; quantity: decrease
answer
b) Price: increase; quantity: decrease
question
In a perfectly competitve industry, the market price of product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should
a) decrease its selling price
b) increase its selling price
c) decrease output but keep producing
d) shut down
e) leave both price and output unchanged
a) decrease its selling price
b) increase its selling price
c) decrease output but keep producing
d) shut down
e) leave both price and output unchanged
answer
c) decrease output but keep producing
question
When a perfectly competitive firm sells additional units of output, its total revenue will
a) remain constant
b) increase rapidly at first, then decline
c) increase at a decreasing rate
d) increase at an increasing rate
e) increase at a constant rate
a) remain constant
b) increase rapidly at first, then decline
c) increase at a decreasing rate
d) increase at an increasing rate
e) increase at a constant rate
answer
e) increase at a constant rate
question
Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation?
a) A monopolist produces too little of the good, producing an output that minimizes the average cost of production.
b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.
c) A monopolist is more likely to pollute the environment than are firms in a competitive industry.
d) A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves.
e) A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.
a) A monopolist produces too little of the good, producing an output that minimizes the average cost of production.
b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.
c) A monopolist is more likely to pollute the environment than are firms in a competitive industry.
d) A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves.
e) A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.
answer
b) A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.
question
If the price for a product produced in a competitive market increases, which of the following is most likely to occur in the labor market for workers who produce that product?
a) The demand for labor and the number of workers hired both increase.
b) The supply of labor and the number of workers hired both increase.
c) The demand for labor and the number of workers hired both decrease.
d) The supply of labor and the number of workers hired both decrease.
e) There is a movement along the demand for labor curve, and firms hire more workers.
a) The demand for labor and the number of workers hired both increase.
b) The supply of labor and the number of workers hired both increase.
c) The demand for labor and the number of workers hired both decrease.
d) The supply of labor and the number of workers hired both decrease.
e) There is a movement along the demand for labor curve, and firms hire more workers.
answer
a) The demand for labor and the number of workers hired both increase.
question
A factor of production will NOT earn economic rent when its supply is
a) elastic
b) inelastic
c) unit elastic
d) perfectly elastic
e) perfectly inelastic
a) elastic
b) inelastic
c) unit elastic
d) perfectly elastic
e) perfectly inelastic
answer
d) perfectly elastic
question
Whenever the production of a good creates negative externalities, an unregulated market will result in
a) too little of the good being produced
b) an optimal amount of the good being produced
c) society's marginal cost being higher than the firm's marginal cost
d) the firm's marginal cost being higher than society's marginal cost
e) the firm's marginal cost being equal to society's marginal cost
a) too little of the good being produced
b) an optimal amount of the good being produced
c) society's marginal cost being higher than the firm's marginal cost
d) the firm's marginal cost being higher than society's marginal cost
e) the firm's marginal cost being equal to society's marginal cost
answer
c) society's marginal cost being higher than the firm's marginal cost
question
The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing.
Food - Gamma: 10; Omega: 5
Clothing - Gamma: 9; Omega: 3
Which of the following statements is true according to the chart above?
a) Trade should take place, with Gamma specializing in clothing production and Omega specializing in food production.
b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
c) Each country should devote half of its resources to food production and half to clothing production and not trade.
d) Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from trade with Gamma.
e) Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit from trade with Omega.
Food - Gamma: 10; Omega: 5
Clothing - Gamma: 9; Omega: 3
Which of the following statements is true according to the chart above?
a) Trade should take place, with Gamma specializing in clothing production and Omega specializing in food production.
b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
c) Each country should devote half of its resources to food production and half to clothing production and not trade.
d) Since Omega can produce both food and clothing using fewer resources than Gamma, it cannot benefit from trade with Gamma.
e) Since Gamma can produce both food and clothing using fewer resources than Omega, it cannot benefit from trade with Omega.
answer
b) Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
question
The table below represents points on an economy's current production possibilities curve.
Good X Good Y
1,000 0
990 100
980 200
970 300
The opportunity cost of increasing the production of good Y from 0 to 200 is
a) 1,000 units of X
b) 980 units of X
c) 200 units of X
d) 20 units of X
e) 5 units of X
Good X Good Y
1,000 0
990 100
980 200
970 300
The opportunity cost of increasing the production of good Y from 0 to 200 is
a) 1,000 units of X
b) 980 units of X
c) 200 units of X
d) 20 units of X
e) 5 units of X
answer
d) 20 units of X
question
Which of the following situations best illustrates the law of demand?
a) As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased.
b) Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine.
c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased.
d) The increase in the price of quality health foods has increased the revenues of firms producing these goods.
e) As the demand for computers has increased, the number of workers in the computer industry has increased.
a) As real incomes of United States citizens have decreased over the past year, the demand for housing has also decreased.
b) Recent decreases in the price of imported wine have led to an increase in the consumption of domestic wine.
c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased.
d) The increase in the price of quality health foods has increased the revenues of firms producing these goods.
e) As the demand for computers has increased, the number of workers in the computer industry has increased.
answer
c) In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased.
question
The following chart shows the total utility than Juan receives from consuming various amounts of chocolate candy bars each day.
Number of Candy Bars
Consumed per Day Total Utility
0 0
1 40
2 70
3 90
4 100
5 80
Which of the following statements about Juan's marginal utility is correct?
a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
b) His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar.
c) His marginal utility increases at a constant rate.
d) He first experiences diminishing marginal utility with the consumption of the fifth candy bar.
e) His greatest marginal utility comes from his consumption of the fourth candy bar.
Number of Candy Bars
Consumed per Day Total Utility
0 0
1 40
2 70
3 90
4 100
5 80
Which of the following statements about Juan's marginal utility is correct?
a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
b) His marginal utility from the fourth candy bar is greater than his marginal utility from the third candy bar.
c) His marginal utility increases at a constant rate.
d) He first experiences diminishing marginal utility with the consumption of the fifth candy bar.
e) His greatest marginal utility comes from his consumption of the fourth candy bar.
answer
a) His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
question
(Look at Graph in Packet for #35) The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon?
a) A shortage of 900 million gallons
b) A shortage of 200 million gallons
c) A shortage of 100 million gallons
d) A surplus of 100 million gallons
e) Neither a surplus nor a shortage
a) A shortage of 900 million gallons
b) A shortage of 200 million gallons
c) A shortage of 100 million gallons
d) A surplus of 100 million gallons
e) Neither a surplus nor a shortage
answer
e) Neither a surplus nor a shortage
question
According to the table above, which shows the costs of production for a firm, the average total cost of producing 3 units of output is
a) 5.00
b) 11.67
c) 13.33
d) 15.00
e) 20.00
a) 5.00
b) 11.67
c) 13.33
d) 15.00
e) 20.00
answer
e) 20.00
question
In the short run, a decrease in production costs of a product will shift
a) both the demand curve and the supply curve to the right
b) the demand curve to the left and the supply curve to the right
c) only the supply curve to the right
d) only the supply curve to the left
e) only the demand curve to the left
a) both the demand curve and the supply curve to the right
b) the demand curve to the left and the supply curve to the right
c) only the supply curve to the right
d) only the supply curve to the left
e) only the demand curve to the left
answer
c) only the supply curve to the right
question
A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct?
a) The total revenue from selling 101 units is the same as the total revenue from selling 100 units.
b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.
c) The total cost of producing 101 units is $2 greater than the total cost of producing 100 units.
d) To sell 101 units, the firm must reduce its price below $20.
e) To sell 101 units, the firm must raise its price above $20.
a) The total revenue from selling 101 units is the same as the total revenue from selling 100 units.
b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.
c) The total cost of producing 101 units is $2 greater than the total cost of producing 100 units.
d) To sell 101 units, the firm must reduce its price below $20.
e) To sell 101 units, the firm must raise its price above $20.
answer
b) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.
question
In the short run in perfect competition, the industry's demand curve and a firm's demand curve have which of the following slopes?
Industry's Demand Curve Firm's Demand Curve
a) Horizontal Downward sloping
b) Horizontal Horizontal
c) Downward sloping Horizontal
d) Downward sloping downward sloping
e) Vertical Hoizontal
Industry's Demand Curve Firm's Demand Curve
a) Horizontal Downward sloping
b) Horizontal Horizontal
c) Downward sloping Horizontal
d) Downward sloping downward sloping
e) Vertical Hoizontal
answer
c) Downward sloping; Horizontal
question
(Look at Graph in Packet for #40) Which of the follow statements about the firm whose cost and revenue curves are shown above is correct?
a) Its profit-maximizing price is $5.
b) Its profit-maximizing output level is 200 units.
c) Its maximum profit is $4,000.
d) If it produces 250 units, it will earn no economic profits.
e) At the profit-maximizing level of output, its total cost is $1,000.
a) Its profit-maximizing price is $5.
b) Its profit-maximizing output level is 200 units.
c) Its maximum profit is $4,000.
d) If it produces 250 units, it will earn no economic profits.
e) At the profit-maximizing level of output, its total cost is $1,000.
answer
b) Its profit-maximizing output level is 200 units.
question
Interdependence among firms is a characteristic primarily associated with
a) labor markets
b) perfect competition
c) monopsony
d) oligopoly
e) monopoly
a) labor markets
b) perfect competition
c) monopsony
d) oligopoly
e) monopoly
answer
d) oligopoly
question
Monopolistically competitive firms at a higher average cost than do perfectly competitive firms
a) produce a lower level of output at a higher average cost than do perfectly competitive firms
b) use production processes that are more capital intensive than do perfectly competitive firms
c) face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue
d) produce at that level of output where price equals marginal cost
e) realize diseconomies of scale
a) produce a lower level of output at a higher average cost than do perfectly competitive firms
b) use production processes that are more capital intensive than do perfectly competitive firms
c) face downward-sloping demand curves, ensuring that marginal revenue is greater than average revenue
d) produce at that level of output where price equals marginal cost
e) realize diseconomies of scale
answer
a) produce a lower level of output at a higher average cost than do perfectly competitive firms
question
In a perfectly competitive labor market for nurses, all of the following statements are true EXCEPT:
a) The imposition of an effective minimum wage will result in unemployment.
b) An increase in the marginal product of nurses will increase the demand for nurses and increase wages.
c) An increase in the supply of nurses will create unemployment and leave wages unchanged.
d) An increase in the demand for health care will increase the demand for nurses and increase wages.
e) Revoking work permits for foreign nurses will increase wages of domestic nurses.
a) The imposition of an effective minimum wage will result in unemployment.
b) An increase in the marginal product of nurses will increase the demand for nurses and increase wages.
c) An increase in the supply of nurses will create unemployment and leave wages unchanged.
d) An increase in the demand for health care will increase the demand for nurses and increase wages.
e) Revoking work permits for foreign nurses will increase wages of domestic nurses.
answer
c) An increase in the supply of nurses will create unemployment and leave wages unchanged.
question
For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the firm to maximize profits?
Price of Labor Price of Capital
a) $2 $5
b) $3 $20
c) $10 $10
d) $2 $25
e) $60 $100
Price of Labor Price of Capital
a) $2 $5
b) $3 $20
c) $10 $10
d) $2 $25
e) $60 $100
answer
e) $60; $100
question
In the United States, the federal government redistributes income primarily by
a) setting up planning commissions to set wage rates
b) taxing different income levels at different rates
c) guaranteeing every person a minimum income through minimum-wage laws
d) providing the same goods and services to all citizens
e) relocating and retraining structurally unemployed people
a) setting up planning commissions to set wage rates
b) taxing different income levels at different rates
c) guaranteeing every person a minimum income through minimum-wage laws
d) providing the same goods and services to all citizens
e) relocating and retraining structurally unemployed people
answer
b) taxing different income levels at different rates
question
(Look at Graph in Packet for #46) The diagram above shows an economy's current production possibilities curve for capital goods and consumer goods. If society chooses point B over point A, society is choosing
a) more future consumption in exchange for less current consumption
b) more current capital goods in exchange for less future consumption
c) more future and current consumption
d) less future consumption in exchange for more current consumption
e) less current capital goods in exchange for greater future consumption
a) more future consumption in exchange for less current consumption
b) more current capital goods in exchange for less future consumption
c) more future and current consumption
d) less future consumption in exchange for more current consumption
e) less current capital goods in exchange for greater future consumption
answer
a) more future consumption in exchange for less current consumption
question
Which of the following is true in the elastic range of a firm's demand curve?
a) The firm should expand output to increase economic profits.
b) An increase in price will also lead to an increase in total cost.
c) A decrease in price will likely lead to an increase in total revenue.
d) Marginal revenue is negative.
e) The firm is maximizing total revenue.
a) The firm should expand output to increase economic profits.
b) An increase in price will also lead to an increase in total cost.
c) A decrease in price will likely lead to an increase in total revenue.
d) Marginal revenue is negative.
e) The firm is maximizing total revenue.
answer
c) A decrease in price will likely lead to an increase in total revenue.
question
The supply curve for automobiles will shift to the left in response to
a) an increase in the efficiency of robot technology
b) an increase in wages in the automobile industry
c) a decrease in the number of consumers purchasing automobiles
d) a decrease in the interest rates for automobile loans
e) a decrease in consumers' income
a) an increase in the efficiency of robot technology
b) an increase in wages in the automobile industry
c) a decrease in the number of consumers purchasing automobiles
d) a decrease in the interest rates for automobile loans
e) a decrease in consumers' income
answer
b) an increase in wages in the automobile industry
question
An increase in which of the following will most likely result in a long-run surplus of a product?
a) The number of supplies of the product
b) A price that is set by law above the equilibrium price
c) The demand for the product
d) The costs of resources used to produce the product
e) The future expected price of the product
a) The number of supplies of the product
b) A price that is set by law above the equilibrium price
c) The demand for the product
d) The costs of resources used to produce the product
e) The future expected price of the product
answer
b) A price that is et by law above the equilibrium price
question
Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium?
a) TUx = Tuy
b) Mux = MUy
c)Tux/Px = TUy/Py
d) MUx/Px = MUy/Py
(MUx)(Px) + (MUy)(Py) = 1
a) TUx = Tuy
b) Mux = MUy
c)Tux/Px = TUy/Py
d) MUx/Px = MUy/Py
(MUx)(Px) + (MUy)(Py) = 1
answer
d) MUx/Px = MUy/Py
question
Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output?
a) $2
b) $5
c) $7
d) $9
e) $12
a) $2
b) $5
c) $7
d) $9
e) $12
answer
c) $7
question
Which of the following best explains why it is difficult to maintain lasting collusive agreements?
a) There is an unavoidable conflict in that a collusive agreement can increase the profits of some, but not all firms in the industry.
b) There is little potential for gain from collusion unless there is a large number of consumers in the market.
c) Each firm in the industry views it self as facing a vertical demand curve, even though the market demand curve is downward sloping.
d) The firms in the industry have a common incentive to increase output to a more competitive level.
e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.
a) There is an unavoidable conflict in that a collusive agreement can increase the profits of some, but not all firms in the industry.
b) There is little potential for gain from collusion unless there is a large number of consumers in the market.
c) Each firm in the industry views it self as facing a vertical demand curve, even though the market demand curve is downward sloping.
d) The firms in the industry have a common incentive to increase output to a more competitive level.
e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.
answer
e) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.
question
If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately
a) $0.20
b) $3.00
c) $5.00
d) $15.00
e) $45.00
a) $0.20
b) $3.00
c) $5.00
d) $15.00
e) $45.00
answer
c) $5.00
question
If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is
a) producing too little output
b) producing where its marginal revenue is less than its marginal cost
c) using too much of the variable input
d) charging too high a price for its output
e) not earning any economic profits
a) producing too little output
b) producing where its marginal revenue is less than its marginal cost
c) using too much of the variable input
d) charging too high a price for its output
e) not earning any economic profits
answer
a) producing too little output
question
ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more worker and output increases by 5 units per day, the firm's profits will
a) decrease by $5
b) decrease by $75
c) increase by $75
d) increase by $15
e) remain unchanged
a) decrease by $5
b) decrease by $75
c) increase by $75
d) increase by $15
e) remain unchanged
answer
e) remain unchanged
question
The condition for allocative efficiency is violated when
a) firms are price makers (price searchers)
b) short-run profits exist in a competitive industry
c) price equals average total cost
d) the market demand curve is inelastic in a competitive industry
e) the market demand curve is elastic in a competitive industry
a) firms are price makers (price searchers)
b) short-run profits exist in a competitive industry
c) price equals average total cost
d) the market demand curve is inelastic in a competitive industry
e) the market demand curve is elastic in a competitive industry
answer
a) firms are price makers (price searchers)
question
In which of the following cases is the government's actions appropriate for reducing inefficiency?
a) Taxation of the output of chocolate factory that emits an aroma that residents of the city enjoy
b) Regulation that reduces the output of a monopoly
c) A lump-sum tax on a monopolist
d) A subsidy for the consumption of a good produced by a plant that emits a pollutant as a by-product
e) A toll on a congested bridge
a) Taxation of the output of chocolate factory that emits an aroma that residents of the city enjoy
b) Regulation that reduces the output of a monopoly
c) A lump-sum tax on a monopolist
d) A subsidy for the consumption of a good produced by a plant that emits a pollutant as a by-product
e) A toll on a congested bridge
answer
e) A toll on a congested bridge
question
The concept of derived demand is described by which of the following?
a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors.
b) If the salaries of basketball players increase, the quantity of basketball players demanded will decrease.
c) An increase in the income of consumers will increase the demand for opera tickets.
d) An increase in the demand for movie tickets will decrease the demand for video rentals.
e) A decrease in the price of movie tickets will increase the demand for movie tickets.
a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors.
b) If the salaries of basketball players increase, the quantity of basketball players demanded will decrease.
c) An increase in the income of consumers will increase the demand for opera tickets.
d) An increase in the demand for movie tickets will decrease the demand for video rentals.
e) A decrease in the price of movie tickets will increase the demand for movie tickets.
answer
a) A decrease in the demand for theater tickets will decrease the demand for actresses and actors.
question
Which of the following is the best example of a negative externality?
a) An increase in the price of oil due to the imposition of environmental regulations
b) An increase in the price of oil due to action taken by the Organization of Petroleum Exporting Countries (OPEC)
c) A decline in oil stock prices as a result of bad management
d) Oil leakages from drilling platforms in the Gulf of Mexico
e) Declining restrictions on the importation of foreign-made cars
a) An increase in the price of oil due to the imposition of environmental regulations
b) An increase in the price of oil due to action taken by the Organization of Petroleum Exporting Countries (OPEC)
c) A decline in oil stock prices as a result of bad management
d) Oil leakages from drilling platforms in the Gulf of Mexico
e) Declining restrictions on the importation of foreign-made cars
answer
d) Oil leakages from drilling platforms in the Gulf of Mexico
question
Private supply of public goods is most likely to result in
a) less than the efficient level of output, due to the free-rider problem
b) less than the efficient level of output, due to the problem of insufficient competition
c) more than the efficient level of output, due to lower costs of private firms
d) more than the efficient level of output, due to the existence of externalities
e) an overuse of these goods
a) less than the efficient level of output, due to the free-rider problem
b) less than the efficient level of output, due to the problem of insufficient competition
c) more than the efficient level of output, due to lower costs of private firms
d) more than the efficient level of output, due to the existence of externalities
e) an overuse of these goods
answer
a) less than the efficient level of output, due to the free-rider problem
question
Problems faced by all economic systems include which of the following?
I. How to allocate scare resources among unlimited wants
II. How to decentralize markets
III. How to decide what to produce, how to produce, and for whom to produce
IV. How to set government production quotas
a) I only
b) I and III only
c) II and III only
d) I, II, and III only
e) I, II, III, and IV
I. How to allocate scare resources among unlimited wants
II. How to decentralize markets
III. How to decide what to produce, how to produce, and for whom to produce
IV. How to set government production quotas
a) I only
b) I and III only
c) II and III only
d) I, II, and III only
e) I, II, III, and IV
answer
b) I and III only
question
Which of the following would necessarily cause a fall in the price of a product?
a) An increase in population and a decrease in the price of an input
b) An increase in population and a decrease in the number of firms producing the product
c) An increase in average income and an improvement in production technology
d) A decrease in the price of a substitute product and an improvement in production technology
e) A decrease in the price of a substitute product and an increase in the price of an output
a) An increase in population and a decrease in the price of an input
b) An increase in population and a decrease in the number of firms producing the product
c) An increase in average income and an improvement in production technology
d) A decrease in the price of a substitute product and an improvement in production technology
e) A decrease in the price of a substitute product and an increase in the price of an output
answer
d) A decrease in the price of a substitute product and an improvement in production technology
question
The market equilibrium price of home beating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for home heating oil?
I. Quantity supplied in increase.
II. Quantity demanded will increase.
III. Quantity supplied will decrease.
IV. Quantity demanded will decrease.
a) II only
b) I and II only
c) I and IV only
d) II and III only
e) III and IV only
I. Quantity supplied in increase.
II. Quantity demanded will increase.
III. Quantity supplied will decrease.
IV. Quantity demanded will decrease.
a) II only
b) I and II only
c) I and IV only
d) II and III only
e) III and IV only
answer
d) II and III only
question
Suppose that a family buys all its clothing from a discount store and treats these items as inferior goods. Under such circumstances, this family's consumption of discount store clothing will necessarily
a) increase when a family member wins the state lottery
b) increase when a family member gets a raise in pay at work
c) remain unchanged when its income rises or falls due to events beyond the family's control
d) decrease when a family member becomes unemployed
e) decrease when a family member experiences an increase in income
a) increase when a family member wins the state lottery
b) increase when a family member gets a raise in pay at work
c) remain unchanged when its income rises or falls due to events beyond the family's control
d) decrease when a family member becomes unemployed
e) decrease when a family member experiences an increase in income
answer
e) decrease when a family member experiences an increase in income
question
Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel and act as a profit-maximizing monopoly?
a) Price: Decrease; Quantity: Decrease
b) Price: Decrease; Quantity: Increase
c) Price: Increase; Quantity: Increase
d) Price: Increase; Quantity: Decrease
e) Price: Increase; Quantity: No change
a) Price: Decrease; Quantity: Decrease
b) Price: Decrease; Quantity: Increase
c) Price: Increase; Quantity: Increase
d) Price: Increase; Quantity: Decrease
e) Price: Increase; Quantity: No change
answer
d) Price: Increase; Quantity: Decrease
question
Quantity Produced: 0, 1, 2, 3, 4, 5
Total Cost: $5, 17, 28, 41, 61, 91
Barney's Bait Company can sell all the lures it produces at the market price of $14. On the basis of the cost information in the table above, how many lures should the bait company make?
a) 1
b) 2
c) 3
d) 4
e) 5
Total Cost: $5, 17, 28, 41, 61, 91
Barney's Bait Company can sell all the lures it produces at the market price of $14. On the basis of the cost information in the table above, how many lures should the bait company make?
a) 1
b) 2
c) 3
d) 4
e) 5
answer
c) 3
question
A natural monopoly occurs in an industry if
a) economies of scale allow at most one firm of efficient size to exist in that market
b) a single firm has control over a scarce and essential resource
c) a single firm has the technology to produce the product sold in that market
e) above-normal profits persist in the industry
a) economies of scale allow at most one firm of efficient size to exist in that market
b) a single firm has control over a scarce and essential resource
c) a single firm has the technology to produce the product sold in that market
e) above-normal profits persist in the industry
answer
a) economies of scale allow at most one firm of efficient size to exist in that market
question
The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because
a) advertising costs make monopolistic competition
b) the firms in the industry do not operate at the minimum point on their long-run average cost curves
c) there are no restrictions on entering or exiting from the industry
d) the firms in the industry are unable to engage in product differentiation
e) there are close substitutes for each firm's product
a) advertising costs make monopolistic competition
b) the firms in the industry do not operate at the minimum point on their long-run average cost curves
c) there are no restrictions on entering or exiting from the industry
d) the firms in the industry are unable to engage in product differentiation
e) there are close substitutes for each firm's product
answer
c) there are no restrictions on entering or exiting from the industry
question
Which of the following inevitably causes a shift in the market demand for workers with a certain skill?
a) An increase in the demand for goods produced by these workers
b) A decrease in tax rates on the income of these workers
c) An increase in the equilibrium wages received by these workers
d) An increase in the supply of these workers
e) The creation of a federally subsidized program to train new workers
a) An increase in the demand for goods produced by these workers
b) A decrease in tax rates on the income of these workers
c) An increase in the equilibrium wages received by these workers
d) An increase in the supply of these workers
e) The creation of a federally subsidized program to train new workers
answer
a) An increase in the demand for goods produced by these workers
question
If hiring an additional worker would increase a firm's total cost by less than it would increase its total revenue, the firm should
a) not hire the worker
b) hire the worker
c) hire the worker only if another worker leaves
d) hire the worker only if the worker can rise the firm's productivity
e) reduce the number of workers employed by the firm
a) not hire the worker
b) hire the worker
c) hire the worker only if another worker leaves
d) hire the worker only if the worker can rise the firm's productivity
e) reduce the number of workers employed by the firm
answer
b) hire the worker
question
If a firm wants to produce a given amount of output at the lowest possible cost, it should use each resource in such a manner that
a) it uses more of the less expensive resource
b) it uses more of the resource with the highest marginal product
c) each resource has just reached the point of diminishing marginal returns
d) the marginal products of each resource are equal
e) the marginal products per dollar spent on each resource are equal
a) it uses more of the less expensive resource
b) it uses more of the resource with the highest marginal product
c) each resource has just reached the point of diminishing marginal returns
d) the marginal products of each resource are equal
e) the marginal products per dollar spent on each resource are equal
answer
e) the marginal products per dollar spent on each resource are equal
question
In which of the following ways does the united states government currently intervene in the working of the market economy?
I. It produces certain goods and services.
II. It regulates the private sector to achieve a more efficient allocation of resources.
III. It redistributes income through taxation and public expenditure.
a) I only
b) II only
c) III only
d) II and III only
e) I, II, and III
I. It produces certain goods and services.
II. It regulates the private sector to achieve a more efficient allocation of resources.
III. It redistributes income through taxation and public expenditure.
a) I only
b) II only
c) III only
d) II and III only
e) I, II, and III
answer
e) I, II, and III
question
If it were possibly to increase the output of military goods and simultaneously to increase the output of the private sector of an economy, which of the following statements about the economy and its current position relative to its production possibilities curve would be true?
a) The economy is inefficient and inside the curve.
b) The economy is inefficient and on the curve.
c) The economy is efficient and on the curve.
d) The economy is efficient and inside the curve.
e) The economy is efficient and outside the curve.
a) The economy is inefficient and inside the curve.
b) The economy is inefficient and on the curve.
c) The economy is efficient and on the curve.
d) The economy is efficient and inside the curve.
e) The economy is efficient and outside the curve.
answer
a) The economy is inefficient and inside the curve.
question
An effective price floor introduced in the market for rice will result in
a) a decrease in the price of rice and an increase in the quantity of rice sold
b) a decrease in the price of rice and a decrease in the quantity of rice sold
c) a decrease in the price of rice and an excess demand for rice
d) an increase in the price of rice and an excess supply of rice
e) an increase in the price of rice and an excess demand for rice
a) a decrease in the price of rice and an increase in the quantity of rice sold
b) a decrease in the price of rice and a decrease in the quantity of rice sold
c) a decrease in the price of rice and an excess demand for rice
d) an increase in the price of rice and an excess supply of rice
e) an increase in the price of rice and an excess demand for rice
answer
d) an increase in the price of rice and an excess supply of rice
question
Marginal revenue is the change in revenue that results from a one-unit increase in the
a) variable input
b) variable input price
c) output level
d) output price
e) fixed cost
a) variable input
b) variable input price
c) output level
d) output price
e) fixed cost
answer
c) output level
question
A leftward shift in the supply curve of corn would result from
a) decrease in the price of corn
b) a decrease in the price of farm machinery
c) an increase in the demand for corn bread
d) an increase in the labor costs of producing corn
e) an increase in consumers' incomes
a) decrease in the price of corn
b) a decrease in the price of farm machinery
c) an increase in the demand for corn bread
d) an increase in the labor costs of producing corn
e) an increase in consumers' incomes
answer
d) an increase in the labor costs of producing corn
question
(Look at Graph in Packet #3 for #17) The diagram above depicts cost and revenue curves for a firm. What are the firm's profit-maximizing output and price?
a) Output: 0S; Price: 0D
b) Output: 0R; Price: 0E
c) Output: 0Q; Price: 0F
d) Output: 0Q; Price: 0B
e) Output 0P; Price 0G
a) Output: 0S; Price: 0D
b) Output: 0R; Price: 0E
c) Output: 0Q; Price: 0F
d) Output: 0Q; Price: 0B
e) Output 0P; Price 0G
answer
e) Output 0P; Price 0G
question
The government is considering imposing a 3 percent tax on either good A or B. In order to generate the largest revenue, the tax should be imposed on the good for which
a) demand is perfectly elastic
b) demand is perfectly inelastic
c) demand is unit elastic
d) supply is perfectly elastic
e) supply is unit elastic
a) demand is perfectly elastic
b) demand is perfectly inelastic
c) demand is unit elastic
d) supply is perfectly elastic
e) supply is unit elastic
answer
b) demand is perfectly inelastic
question
Which of the following statements has to be true in a perfectly competitive market?
a) A firm's marginal revenue equals price.
b) A firm's average total cost is above price in the long run.
c) A firm's average fixed cost rises in the short run.
d) A firm's average variable cost is higher than price in the long run.
e) Large firms have lower costs than small firms.
a) A firm's marginal revenue equals price.
b) A firm's average total cost is above price in the long run.
c) A firm's average fixed cost rises in the short run.
d) A firm's average variable cost is higher than price in the long run.
e) Large firms have lower costs than small firms.
answer
a) A firm's marginal revenue equals price
question
Assume that an electric power company owns two plants and that, on a particular day, 10,000 kilowatts of electricity are demanded by the public. In order to minimize the total cost of providing the 10,000 kilowatts, the company should allocate production so that
a) marginal costs are the same for both plants
b) average total costs are the same for both plants
c) total variable costs are the same for both plants
d) the sum of total variable cost and total fixed cost is the same for both plants
e) only the plant with the lower average cost is used to produce the 10,000 kilowatts of electricity
a) marginal costs are the same for both plants
b) average total costs are the same for both plants
c) total variable costs are the same for both plants
d) the sum of total variable cost and total fixed cost is the same for both plants
e) only the plant with the lower average cost is used to produce the 10,000 kilowatts of electricity
answer
a) marginal costs are the same for both plants
question
Suppose that the consumption of a certain product results in benefits to others besides the consumers of the product. Which of the following statements is most likely to be true?
a) The demand for the product is price inelastic.
b) A perfectly competitive industry will not produce the optimal quantity of the product.
c) A perfectly competitive industry will not produce the product.
d) Optimally requires that consumers of this product will be taxed.
e) Producers of this product earn an economic profit.
a) The demand for the product is price inelastic.
b) A perfectly competitive industry will not produce the optimal quantity of the product.
c) A perfectly competitive industry will not produce the product.
d) Optimally requires that consumers of this product will be taxed.
e) Producers of this product earn an economic profit.
answer
b) A perfectly competitive industry will not produce the optimal quantity of the product.
question
Number of Workers: 2, 3, 4, 5
Total Output: 12, 22, 28, 32
Which of the following is the marginal product of the fourth worker?
a) 4
b) 5
c) 6
d) 28
e) 112
Total Output: 12, 22, 28, 32
Which of the following is the marginal product of the fourth worker?
a) 4
b) 5
c) 6
d) 28
e) 112
answer
c) 6
question
Number of Workers: 2, 3, 4, 5
Total Output: 12, 22, 28, 32
Greta already employs 3 workers. if the price of jackets is $5 and the wage rate is $25, she should
a) go out of business altogether
b) lay off the third worker
c) keep the third worker but not employ more workers
d) hire two more workers
e) hire one more worker
Total Output: 12, 22, 28, 32
Greta already employs 3 workers. if the price of jackets is $5 and the wage rate is $25, she should
a) go out of business altogether
b) lay off the third worker
c) keep the third worker but not employ more workers
d) hire two more workers
e) hire one more worker
answer
e) hire one more worker
question
A city council is deciding what price to set for a trip on the city's commuter train line. if the council wants to maximize profits, it will set a price so that
a) price equals marginal cost
b) price equals average cost
c) price equals marginal revenue
d) marginal revenue equals marginal cost
e) marginal revenue equals average total cost
a) price equals marginal cost
b) price equals average cost
c) price equals marginal revenue
d) marginal revenue equals marginal cost
e) marginal revenue equals average total cost
answer
d) marginal revenue equals marginal cost
question
The demand curve for cars is downward sloping because an increase in the price of cars leads to
a) the increased use of other modes of transportation
b) a fall in the expected future price of cars
c) a decrease in the number of cars available for purchased
d) a rise in the prices of gasoline and other oil-based products
e) a change in consumers' tastes in cars
a) the increased use of other modes of transportation
b) a fall in the expected future price of cars
c) a decrease in the number of cars available for purchased
d) a rise in the prices of gasoline and other oil-based products
e) a change in consumers' tastes in cars
answer
a) the increased use of other modes of transportation
question
(Look at Graph in Packet #3 for #26) Which of the following best explains the shape of the production possibilities curve for the two commodity economy shown above?
a) The opportunity cost of producing an additional unit of each commodity expands.
b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands.
c) The opportunity cost of producing an additional unit of each commodity increases as production of the commodity expands.
d) The quantity demanded of each commodity increases.
e) The quantity demanded for each commodity increases as the production of the commodity expands.
a) The opportunity cost of producing an additional unit of each commodity expands.
b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands.
c) The opportunity cost of producing an additional unit of each commodity increases as production of the commodity expands.
d) The quantity demanded of each commodity increases.
e) The quantity demanded for each commodity increases as the production of the commodity expands.
answer
b) The opportunity cost of producing an additional unit of each commodity decreases as production of the commodity expands.
question
In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have
a) a higher price and higher output
b) a higher price and lower output
c) a lower price and lower output
d) a lower price and lower output
e) the same price and lower output
a) a higher price and higher output
b) a higher price and lower output
c) a lower price and lower output
d) a lower price and lower output
e) the same price and lower output
answer
c) a lower price and lower output
question
Assume that products X and Y are substitutes. If the cost of producing X decreases and the price of Y increases, which of the following will occur to the equilibrium price and quantity of X?
a) Price of X: Increase; Quantity of X: Increase
b) Price of X: Increase; Quantity of X: Decrease
c) Price of X: Increase; Quantity of X: Increase or decrease
d) Price of X: Increase or decrease; Quantity of X: Increase
e) Price of X: Decrease; Quantity of X: Decrease
a) Price of X: Increase; Quantity of X: Increase
b) Price of X: Increase; Quantity of X: Decrease
c) Price of X: Increase; Quantity of X: Increase or decrease
d) Price of X: Increase or decrease; Quantity of X: Increase
e) Price of X: Decrease; Quantity of X: Decrease
answer
d) Price of X: Increase or decrease; Quantity of X: Increase
question
Suppose that an effective minimum wage is imposed in a certain labor market above the equilibrium wage. If labor supply in that market subsequently increases, which of the following will occur?
a) Unemployment in that market will increase
b) Quantity of labor supplied will decrease.
c) Quantity of labor demanded will increase.
d) Market demand will increase.
e) The market wage will increase.
a) Unemployment in that market will increase
b) Quantity of labor supplied will decrease.
c) Quantity of labor demanded will increase.
d) Market demand will increase.
e) The market wage will increase.
answer
d) Market demand will increase.
question
Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
a) average cost is at a minimum
b) price equals marginal revenue
c) marginal revenue is greater than marginal cost
d) price equals marginal cost
e) price is greater than marginal cost
a) average cost is at a minimum
b) price equals marginal revenue
c) marginal revenue is greater than marginal cost
d) price equals marginal cost
e) price is greater than marginal cost
answer
e) price is greater than marginal cost
question
Output: 0, 1, 2, 3, 4, 5, 6
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's marginal cost of producing the fourth unit of output?
a) $54.00
b) $13.50
c) $7.50
d) $6.00
e) $1.50
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's marginal cost of producing the fourth unit of output?
a) $54.00
b) $13.50
c) $7.50
d) $6.00
e) $1.50
answer
d) $6.00
question
Output: 0, 1, 2, 3, 4, 5, 6
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's average total cost of producing 3 units of output?
a) $48.00
b) $16.00
c) $14.00
d) $13.50
e) $7.00
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's average total cost of producing 3 units of output?
a) $48.00
b) $16.00
c) $14.00
d) $13.50
e) $7.00
answer
b) $16.00
question
Output: 0, 1, 2, 3, 4, 5, 6
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's average fixed cost of producing 2 units of output?
a) $24.00
b) $20.50
c) $12.00
d) $8.00
e) $7.50
Total Cost: $24, 33, 41, 48, 54, 61, 69
Which of the following is the firm's average fixed cost of producing 2 units of output?
a) $24.00
b) $20.50
c) $12.00
d) $8.00
e) $7.50
answer
c) $12.00
question
In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will
a) raise its price
b) increase its output
c) decrease its output slightly but increase its profit margin
d) lose more by continuing to produce than by shutting down
e) lose less by continuing to produce than by shutting down
a) raise its price
b) increase its output
c) decrease its output slightly but increase its profit margin
d) lose more by continuing to produce than by shutting down
e) lose less by continuing to produce than by shutting down
answer
d) lose more by continuing to produce than by shutting down
question
Which of the following statements is true of perfectly competitive firms in long-run equilibrium?
a) Firm revenues will decrease if production is increased.
b) Total firm revenues are at a maximum.
c) Average fixed cost equals marginal cost.
d) Average total cost is at a minimum.
e) Average variable cost is greater than marginal cost.
a) Firm revenues will decrease if production is increased.
b) Total firm revenues are at a maximum.
c) Average fixed cost equals marginal cost.
d) Average total cost is at a minimum.
e) Average variable cost is greater than marginal cost.
answer
d) Average total cost is at a minimum.
question
Assume that both input and product markets are competitive. If the product price rises, in the short run firms will increase production by increasing
a) the stock of fixed capital until marginal revenue equals the product price
b) the stock of fixed capital until the average product of capital equals the price of capital
c) labor input until the marginal revenue product of labor equals the wage rate
d) labor input until the marginal product of labor equals the wage rate
e) labor input until the ratio of product price to the marginal product of labor equals the wage rate
a) the stock of fixed capital until marginal revenue equals the product price
b) the stock of fixed capital until the average product of capital equals the price of capital
c) labor input until the marginal revenue product of labor equals the wage rate
d) labor input until the marginal product of labor equals the wage rate
e) labor input until the ratio of product price to the marginal product of labor equals the wage rate
answer
c) labor input until the marginal revenue product of labor equals the wage rate
question
Half of the inhabitants of an island oppose building a new bridge to the mainland since they say it will destroy the island's quaint atmosphere. The economic concept that is most relevant to the decision of whether or not to build the bridge is
a) externalities
b) natural monopoly
c) economic rent
d) imperfect competition
e) perfect competition
a) externalities
b) natural monopoly
c) economic rent
d) imperfect competition
e) perfect competition
answer
a) externalities
question
Which of the following best states the thesis of the law of comparative advantage?
a) Differences in relative costs of production are the key to determining patterns of trade.
b) Differences in absolute costs of production determine which goods should be traded between nations.
c) Tariffs and quotas are beneficial in increasing international competitiveness.
d) Nations should not specialize in the production of goods and services.
e) Two nations will not trade if one is more efficient than the other in the production of all goods.
a) Differences in relative costs of production are the key to determining patterns of trade.
b) Differences in absolute costs of production determine which goods should be traded between nations.
c) Tariffs and quotas are beneficial in increasing international competitiveness.
d) Nations should not specialize in the production of goods and services.
e) Two nations will not trade if one is more efficient than the other in the production of all goods.
answer
a) Differences in relative costs of production are the key to determining patterns of trade.
question
A student who attends college would pay $10,000 annually for tuition, books, and fees. If the student next best alternative is to work and earn $15,000 a year, the opportunity of a year in college would be equal to
a) zero, since the lost opportunity to earn income is offset by the opportunity to attend college
b) $5,000 representing the difference between forgone income and college costs
c) $10,000, since opportunity costs include only actual cash outlays
d) $15,000 representing forgone income, since the costs of tuition, books, and fees will be more than offset by additional income earned after graduation
e) $25,000, representing the sum of tuition, books, fees, and forgone income
a) zero, since the lost opportunity to earn income is offset by the opportunity to attend college
b) $5,000 representing the difference between forgone income and college costs
c) $10,000, since opportunity costs include only actual cash outlays
d) $15,000 representing forgone income, since the costs of tuition, books, and fees will be more than offset by additional income earned after graduation
e) $25,000, representing the sum of tuition, books, fees, and forgone income
answer
e) $25,000, representing the sum of tuition, books, fees, and forgone income
question
If an increase in the price of good X causes a drop in demand for good Y, good Y is
a) an inferior good
b) a luxury good
c) a necessary good
d) a substitute X
e) a complement for good X
a) an inferior good
b) a luxury good
c) a necessary good
d) a substitute X
e) a complement for good X
answer
e) a complement for good X
question
An improvement in production technology for a certain good leads to
a) an increase in demand for the good
b) an increase in the supply of the good
c) an increase in the price of the good
d) a shortage of the good
e) a surplus of the good
a) an increase in demand for the good
b) an increase in the supply of the good
c) an increase in the price of the good
d) a shortage of the good
e) a surplus of the good
answer
b) an increase in the supply of the good
question
A firm doubles all of its inputs and finds that it has more than doubled its output. This situation is an example of
a) increasing marginal returns
b) diminishing marginal returns
c) constant returns to scale
d) increasing returns to scale
e) decreasing returns to scale
a) increasing marginal returns
b) diminishing marginal returns
c) constant returns to scale
d) increasing returns to scale
e) decreasing returns to scale
answer
d) increasing returns to scale
question
Reducing the tariff on the Canadian beer sold in the United States will most likely have which of the following effects on the market for beer produced and sold in the United States?
a) The quantity of United States beer purchased will increase.
b) Total expenditure of United States beer will increase.
c) The supply of United States beer will increase.
d) The price of the United States beer will decrease.
e) More workers will be employed in the production of United States beer.
a) The quantity of United States beer purchased will increase.
b) Total expenditure of United States beer will increase.
c) The supply of United States beer will increase.
d) The price of the United States beer will decrease.
e) More workers will be employed in the production of United States beer.
answer
d) The price of the United States beer will decrease.
question
Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm's short-run costs?
a) MC: Increase; ATC: Increase; AVC: Increase
b) MC: Increase; ATC: Increase; AVC: No effect
c) MC: No effect; ATC: No effect; AVC: No effect
d) MC: No effect; ATC: Increase; AVC: Increase
e) MC: No effect; ATC: Increase; AVC: No effect
a) MC: Increase; ATC: Increase; AVC: Increase
b) MC: Increase; ATC: Increase; AVC: No effect
c) MC: No effect; ATC: No effect; AVC: No effect
d) MC: No effect; ATC: Increase; AVC: Increase
e) MC: No effect; ATC: Increase; AVC: No effect
answer
e) MC: No effect; ATC: Increase; AVC: No effect
question
In a perfectly competitive market, an individual farmer intending to increase her revenue decides to increase the price of her crop by 20 percent. As a result her total revenue will
a) decrease
b) stay the same
c) increase by less than 20 percent
d) increase by 20 percent
e) increase by more than 20 percent
a) decrease
b) stay the same
c) increase by less than 20 percent
d) increase by 20 percent
e) increase by more than 20 percent
answer
a) decrease
question
If the supply of a factor or production is fixed, which of the following will be true of its price?
a) Supply is irrelevant to the determination of factor price.
b) A positive factor price cannot be justified on economic grounds.
c) Factor price will be determined by the demand for the fixed amount of the factor.
d) Factor price will not be determined by supply and demand analysis.
e) Factor price will be zero, since no payment is necessary to secure the services of the factor.
a) Supply is irrelevant to the determination of factor price.
b) A positive factor price cannot be justified on economic grounds.
c) Factor price will be determined by the demand for the fixed amount of the factor.
d) Factor price will not be determined by supply and demand analysis.
e) Factor price will be zero, since no payment is necessary to secure the services of the factor.
answer
c) Factor price will be determined by the demand for the fixed amount of the factor.
question
Which of the following is true if a perfectly competitive industry is earning zero economic profits in the long run?
a) The level of investment in long-run equilibrium is greater than the efficient level.
b) Relatively few firms are able to survive the competitive pressures in the long run.
c) Some firms will be forced to transfer their resources to more lucrative uses.
d) The resources invested in this industry are earning at least as high a return as the would in any alternative use.
e) Firms will exit until economic profits become positive.
a) The level of investment in long-run equilibrium is greater than the efficient level.
b) Relatively few firms are able to survive the competitive pressures in the long run.
c) Some firms will be forced to transfer their resources to more lucrative uses.
d) The resources invested in this industry are earning at least as high a return as the would in any alternative use.
e) Firms will exit until economic profits become positive.
answer
d) The resources invested in this industry are earning at least as high a return as the would in any alternative use.
question
(Look at Graph in Packet #3 for #48) The figure above shows cost and revenue curves for a public regulated power company and three possible prices for its output. Which of the following statements about those prices is most accurate?
a) If P1 were approved, regulation would not be needed and the company would have every incentive to lower rates to P2.
b) P1 is inefficient; it is better to have several utilities serve the area than to approve P1.
c) P2 is ideal; it gives stockholders the maximum rate of return and protects consumers from exploitation.
d) P3 would maximize consumer welfare; greater electric use at this low rate would guarantee stockholders a fair rate of return.
e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.
a) If P1 were approved, regulation would not be needed and the company would have every incentive to lower rates to P2.
b) P1 is inefficient; it is better to have several utilities serve the area than to approve P1.
c) P2 is ideal; it gives stockholders the maximum rate of return and protects consumers from exploitation.
d) P3 would maximize consumer welfare; greater electric use at this low rate would guarantee stockholders a fair rate of return.
e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.
answer
e) P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.
question
In a market economy, public goods such as community police protection are unlikely to be provided in sufficient quantity by the private sector because
a) private firms are less efficient at producing public goods than is the government
b) the use of public goods cannot be withheld from those who do not pay for them
c) consumers lack information about the benefits of public goods
d) consumers do not value public goods highly enough for firms to produce them profitably
e) public goods are inherently too important to be left to private firms to produce
a) private firms are less efficient at producing public goods than is the government
b) the use of public goods cannot be withheld from those who do not pay for them
c) consumers lack information about the benefits of public goods
d) consumers do not value public goods highly enough for firms to produce them profitably
e) public goods are inherently too important to be left to private firms to produce
answer
b) the use of public goods cannot be withheld from those who do not pay for them
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