question
Which of the following best defines opportunity cost?
answer
It is the amount of one product that must be given up in order to produce an additional unit of another product
question
Which of the following explains why a production possibilities curve is often represented as concave (bowed out) from the origin?
answer
Increasing opportunity cost
question
Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by
answer
increasing the demand for pretzels and therefore the price of pretzels
question
In the market depicted in the diagram above, if the government imposes a price ceiling of $1.00 per gallon gasoline, which of the following will result? (Question 4 on study guide)
answer
a shortage of 6 billion gallons
question
Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will
answer
buy the same amounts of goods X and Y
question
Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to
answer
rise initially, but eventually fall
question
In the short run, which of the following costs must continuously decrease as output produced increase?
answer
average fixed cost
question
If the firm produces 10 units of output, its economic profits will equal (Question 8 from study guide)
answer
$50
question
Which of the following is most likely to occur if the firm increases production beyond 10 units? (Question 9 from study guide)
answer
the firm would have to lower its price to sell more than 10 units
question
Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
answer
an increase in demand will cause no change in the long-run equilibrium price
question
In which of the following market structures do firms recognize their mutual interdependence?
answer
oligopoly
question
assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600.00, and the fixed cost of production is $50.00. Based on this information, which of the following is true for the firm?
answer
its marginal cost is $6.00, and its average variable cost is $5.50.
question
Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and on the total hours they work?
answer
worker rate of rural worker- Decrease, Pollution- decrease
question
A per-unit tax on pollution produced by a firm will affect the firm's output and pollution levels in which of the following ways?
answer
output- decrease, pollution- decrease
question
Which of the following will most likely lead to a more equal distribution of income
answer
more progressive income taxes
question
assume both italy and greece produce only two goods: wine and olive oil. if italy holds a comparative advantage in the production of wine, then which of the following statements is NOT true?
answer
italy must hold an absolute advantage in the production of wine
question
following a prolonged power outage, the price of flashlights normally increases significantly. if cities had passed laws prohibiting price increases for flashlights, during power outages such laws would most likely
answer
create a shortage of flashlights
question
what is the price paid by consumers and the net price received by producers after the tax is paid? (Question 18 from study guide)
answer
paid by consumers- $10.45, received by producers- $9.45
question
According to the diagram, what is the dollar amount of the unit tax (Question 19 from study guide)
answer
$1.00
question
according to the law of diminishing marginal utility, which of the following is true?
answer
the additional satisfaction received from consuming extra units of a good decreases
question
Within the range of market demand, which of the following is consistent with the conditions of a natural monopoly?
answer
long run average total cost decreases as output increases
question
a farmer grows wheat using two inputs: labor and land whose prices are constant. if she doubles her inputs, she finds that the quantity of wheat produced more than doubles. therefore, it must be true that in this output range her long run average total cost curve is
answer
reduced short run profits, followed by the exit of some firms
question
a constant cost, perfect gadget industry is in long run equilibrium. an increase in the number of consumers of gadgets will most likely result in
answer
a higher short run for gadgets, followed by an increase in the quantity produced
question
the profit maximizing firm depicted in the graph above should (question 24 from study guide)
answer
exit if conditions do not improve in the long run
question
if the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is (question 25 from study guide)
answer
$400
question
how many workers would the coal company want to hire if the price of coal were competitively priced at $5 per ton and the wage rate were $40 per day? (question 26 from study guide)
answer
4
question
the marginal physical product of the second worker is (question 27 from study guide)
answer
19
question
instead of being employed at a printing company at a salary of $25,000 per year, sally starts her own printing firm. rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. her costs for workers, materials, advertising, and energy during her first year are $125,000. if she total revenue from her printing company is $155,000, her total economic profit is
answer
-$5,000
question
if the production of a good generates a positive externality, the government can increase allocative efficiency by
answer
subsidizing the producer of the good
question
which of the following is the best example of a pure public good?
answer
national defense
question
according to the information in the table above, which of the following statements is true if both countries have the same number of workers? (Question 31 from study guide)
answer
Country A has an absolute advantage in manufactured goods but a comparative advantage in manufactured goods
question
which fo the following would most likely result in a decrease in the equilibrium price of oranges
answer
new studies suggest that oranges contain traces of cancer causing substances due to pesticide residue
question
If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?
answer
the demand for peanuts must be price inelastic
question
promoters of a rock group know that if they charged $8 a ticket, 400 people would buy tickers for a concert, and if they charged $4 a ticket, 800 people would buy tickets. over this price range, the demand for the concert tickets for the rock group is
answer
unit elastic
question
assume that people like onions on their hamburgers. if the supply of hamburgers decreases, the demand for onion will most likely
answer
decrease because hamburgers and onions are complements
question
if labor is the only variable input in the production process, the short run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added
answer
output increases at a decreasing rate, and thus the cost of producing each additional unit of output decreases
question
at a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. which of the following statements is true for the firm
answer
economic profits are zero because price equals average total cost
question
the graph above shows the short run cost curves of a firm in a perfectly competitive market. which of the following are true at the firm's profit maximizing output level
I. price exceeds average total cost
II. economic profits are zero
III. marginal cost equals average total cost
IV. new firms are likely to enter the market in the long run
I. price exceeds average total cost
II. economic profits are zero
III. marginal cost equals average total cost
IV. new firms are likely to enter the market in the long run
answer
I and IV only
question
which of the following best describes an oligopolistic market?
answer
a few competing sellers with similar products and high barriers to entry
question
the payoff matrix below shows the per unit profits associated with the production strategies of two utility companies, UA and UB. each firm has two choices: to reduce production by 10 percent or by 20 percent. the first entry in each cell indicated the profits to UA, and the second, the profits to UB
answer
both companies have an incentive to reduce production by 10%
question
in order to minimize short run losses, a profit maximizing firm will necessarily shut down production under which of the following conditions
answer
average revenue is less than average variable cost
question
an increase in the effective minimum wage will have less of an impact on employment if the demand for labor is
answer
relatively inelastic
question
if a form employs only labor and capital in its production process, which of the following best describes the optimal combination of inputs for the firm in the long run
answer
the marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital
question
most economists argue that a monopoly is inefficient because it
answer
produces too little output and sets a price above marginal cost
question
the table above shows the distribution of income in country x in 2010 before and after taxes and transfer payments. which of the following can be concluded about the effect of the government's tax and transfer policies on income distribution in country x? (question 45 from study guide)
answer
the major transfer of income is from the highest quintile to the two lowest quintiles
question
after graduating from high school, peggy smith decided to enroll in a two year program at the local community college rather than to accept a job that offered a salary of $12,000 per year. if the annual tuition and fees are $4,600, the annual opportunity cost of attending the community college is
answer
$16,600
question
in which of the following situations is a good NOT scarce
answer
consumers give up nothing to obtain more of the good
question
suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. how will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the total surplus
answer
consumer surplus- decrease, producer surplus-decrease, total surplus- decrease
question
At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the
answer
marginal utility of a bottle of water is less than the marginal utility of a diamond ring
question
if a firm's production process exhibits economies of scale, which of the following will occur when the firm's output increases
answer
its long run average total costs will fall
question
which of the following helps explain why the demand curve for a normal good is downward sloping
answer
the income and substitution effects move the quantity demanded in the same direction
question
the graph above shows the total revenue and total cost curves for a firm in which type of market structure and what is the profit maximizing quantity? (Question 52 from study guide)
answer
market structure- perfect competition, quantity- q3
question
if the total revenue is increasing as output increases, marginal revenue is always
answer
greater than zero
question
let p= price, mr= marginal revenue, mc= marginal cost, and atc= average total cost. in monopolistic competition, which of the following most accurately describes the long run equilibrium conditions for a firm
answer
p= atc, mr=mc, and p>mc
question
in a perfectly competitive free market economy, a wage gap between two workers can be explained by differences in all of the following except their
answer
tastes for luxury goods
question
firm xyz produces and sells corn in a perfectly competitive market and hires its workers in a perfectly competitive labor market. which of the following best describes the demand curve for xyz's corn and xyz's demand curve for labor
answer
demand for xyz's corn- horizontal, xyz's labor demand- downward sloping
question
a monopolistically competitive firm advertises in order to
answer
make the demand for its product less price elastic
question
a profit maximizing firm should hire an input up to the point at which
answer
marginal revenue product equals marginal factor cost
question
the socially optimal quantity and the per unit tax that will achieve the socially optimal quantity are which of the following (question 59 from study guide)
answer
socially optimal quantity- q2, per unit tax- p3-p1
question
given the position of the marginal cost curve one can conclude that the (question 60 from study guide)
answer
production of good x creates a negative externality
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