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1. Land, labor, capital and entrepreneurial talent are often referred to as
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(E) scarce economic resources.
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2. The law of increasing costs is useful in describing
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(D) a concave production possibility frontier.
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3. Which of the following is likely to have a demand curve that is the least elastic?
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(E) Demand for the monopoly firm's output
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4. The figure above shows the production possibility frontiers (PPFs) for two nations that produce crabs and cakes. If these nations specialize and trade based on the principle of comparative advantage, which of the following trade agreements benefit both nations?
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(A) Nation A trades three crabs to Nation B in exchange for two cakes.
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5. Which of the following scenarios would increase a nation's production possibility frontier (PPF)?
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(B) The nation invests in research and development of new technology.
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6. A rational consumer who is eating Girl Scout cookies stops eating when
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(B) the marginal benefit equals the marginal cost of the next cookie.
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7. A competitive market for coffee, a normal good, is currently in equilibrium. Which of the following would most likely result in an increase in the demand for coffee?
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(B) The price of tea rises.
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8. Which of the following certainly lowers the equilibrium price of a good exchanged in a competitive market?
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(C) The demand curve shifts to the left, and the supply curve shifts to the right.
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9. An effective price ceiling in the market for good X likely results in
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(B) a persistent shortage of good X.
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10. Which of the following goods is likely to have the most elastic demand curve?
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(A) Demand for white Ford minivans
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11. Which of the following is a fundamental aspect of the free market system?
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(C) Private property.
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12. The elasticity of supply is typically greater when
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(E) producers have more time to respond to price changes.
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13. Good X is exchanged in a competitive market. Which of the following is true if an excise tax is now imposed on the production of good X?
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(D) The consumer's burden of the tax rises as the demand curve is less elastic.
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14. Which of the following is an implicit cost for the owner of a small store in your hometown?
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(C) The value placed on the owner's skills in an alternative career
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15. Suppose a price floor is installed in the market for coffee. One result of this policy would be
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(A) a decrease in the demand for coffee-brewing machines.
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16. Which unit of labor has marginal revenue product equal to $1.50?
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(E) 5th
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17. If the wage paid to all units of labor is $4.50, how many units of labor are hired?
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(B) 2
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18. Which of the following is true of the perfectly competitive firm in the short run?
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(E) The firm may earn positive, negative, or normal profits.
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19. If the current price is 0B, we would expect
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(D) quantity demanded to be equal to quantity supplied as the market is in equilibrium.
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20. If the price were to fall from 0C to 0A, which of the following would be true?
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(C) Dollars spent on this good would increase if demand for the good were price elastic.
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21. If the market is in equilibrium, which of the following areas corresponds to producer surplus?
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(D) 0BG
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22. The downward-sloping demand curve is partially explained by which of the following?
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(A) Substitution effects and income effects
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23. Dorothy has daily income of $20, each cup of coffee costs Pc=$1, and each scone costs Ps=$4. The table below provides us with Dorothy's marginal utility (MU) received in the consumption of each good. As a utility-maximizing consumer, which combination of coffee and scones should Dorothy consume each day?
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(D) 4 coffee and 4 scones
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24. You are told that Gini coefficient of income inequality has risen from .35 to .85. Which of the following is a likely cause of this change?
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(A) Market power in the factor and output markets has increased.
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25. The figure above best represents which of the following functions?
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(B) Total revenue
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26. If it is true that bacon and eggs are complementary goods, then
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(C) the cross-price elasticity between bacon and eggs is negative.
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27. A firm employs variable amounts of labor to a fixed amount of capital to produce output. If the daily wage paid to labor increases, how does this affect the firm's cost?
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(D) Total Variable Cost: Increase
Total Fixed Cost: No change
Total Cost: Increase
Total Fixed Cost: No change
Total Cost: Increase
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28. Diminishing marginal returns to short-run production begin when
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(E) marginal product of labor begins to fall.
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29. Which of the following is a characteristic of perfect competition?
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(A) Firms produce a homogeneous product.
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30. The table above shows how hiring increasing amounts of labor to a fixed amount of capital affects the hourly output of Eli's lemonade stand. Based on this table of production data, which of the following can be said?
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(E) Diminishing marginal returns begins with the fourth worker hired.
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31. The figure above shows the long-run average cost curve of a competitive firm. Which of the following choices best describes Region B in the diagram?
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(C) Constant returns to scale
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32. The market for good X is currently in equilibrium. Which of the following choices would not cause both a decrease in the equilibrium price of good X and a decrease in the equilibrium quantity of good X?
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(E) An increase in the number of consumers in the market for good X.
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33. If average variable cost at a quantity of 10 is $25, what is the value of $Y in the figure above?
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(E) $350
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34. At a quantity of 10, what is the value of $(Y-X)?
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(A) $100
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35. The demand for labor falls if
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(A) labor productivity falls.
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36. The curve labeled 4 represents which of the following?
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(D) Average fixed cost
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37. Where is the shutdown point for this perfectly competitive firm?
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(C) Any price below curve 3
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38. If a market for a good is producing a negative externality,
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(A) at the market output the marginal costs to society exceed the private marginal costs of production.
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39. Which of the following is a characteristic of a monopoly market?
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(B) Barriers to entry exist.
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40. A monopolist may be able to maintain long-run positive profit due to
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(B) economies of scale in production.
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41. If this firm were a profit-maximizing monopolist, the price, output, and profit would be
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(A) Price: P5
Output: Q1
Profit: Q1 x (c-b)
Output: Q1
Profit: Q1 x (c-b)
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42. Consumer surplus in the monopolist market is equal to the area
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(C) P5cd.
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43. The top six firms in an oligopolistic industry have market shares fo 25%, 25%, 15%, 10%, 6%, and 3%. Many smaller firms split the rest of the market. What is the value of the four-firm concentration ratio?
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(C) 75%
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44. Which of the following statements are true of consumer utility-maximizing behavior?
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(D) I and II only
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45. Oligopoly has at times been the subject of government antitrust regulation. Which of the following is a reason for this government regulation
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(C) Deadweight loss lessens over time.
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46. The production of chicken often results in offending odors that are picked up by the wind and blown over rural communities. This is an example of a ___ externality, the result of which are spillover ___ and an ___ of resources to chicken production.
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(E) negative, costs, overallocation
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47. Which of the following are shared by perfectly competitive firms and monopolistically competitive firms?
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(B) II only
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48. The monopolistically competitive price is above marginal revenue because
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(A) firms have differentiated products.
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49. Deadweight loss in industries with market power is a result of
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(B) profit-maximizing output occurs where price exceeds marginal cost.
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50. If the government wished to regulate a natural monopoly so that it earns a normal profit, it sets
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(C) Price = Average total cost.
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51. Which of the following would improve the efficiency of a monopoly market?
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(D) The government eliminates trade barriers on potential foreign producers.
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52. Which of the following increases the demand for interstate truck drivers?
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(E) A decrease in the price of semitrucks
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53. A monopsony employer hires labor up to the point where
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(C) Marginal factor cost = Marginal revenue product of labor
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54. The price of labor is $5 and the price of capital is $10 per unit. Using the table below, what is the least-cost combination of labor and capital that should be hired to produce 18 units of output?
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(C) 2 Labor and 1 Capital
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55. A cartel is often the result of
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(B) oligopoly competitors that agree to restrict output to maximize joint profits.
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56. Suppose the state requires hairdressers and manicurists to pass a series of exams to be certified cosmetologists. How does this policy change the supply of cosmetologists, the equilibrium wage, and the price of a manicure?
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(A) Supply of Cosmetologists: Decrease
Wage: Increase
Price of Manicures: Increase
Wage: Increase
Price of Manicures: Increase
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57. The local market for bankers is currently in equilibrium. Which of the following increases the local wage paid to bankers?
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(E) The price of automatic teller machines, a substitute for bankers, decreases and the output effect is greater than the substitution effect.
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58. The U.S. government collects tax revenue, buys military equipment from many private firms, and uses this equipment to provide national defense to all Americans. This is a good example of
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(D) a public good.
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59. Which of the following scenarios is the best example of a positive externality?
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(B) Your nieghbor has a swimming pool and allows you free access.
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60. Because of the free-rider effect, the private marketplace tends to
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(D) produce too little of the public good, requiring the government to intervene and provide it for all.
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