question
The following graph shows the demand and supply curves of a resource. The equilibrium price of the resource is
answer
$10
question
Which of the following is true of marginal revenue product (MRP) and marginal product (MP)?
answer
MRP = MP × price only if the firm sells in a perfectly competitive market
question
Which of the following can lead to temporary differentials in resource prices?
answer
Differences in the prices of similar resources
question
The following table shows the product price of a perfectly competitive firm and the output produced by the firm. From the table, it can be said that diminishing marginal returns become first evident with the addition of the _____ machine.
answer
second
question
Suppose the wage for drive through clerks is $7 an hour at Jason Burger and $6.50 at Martha's. The jobs are alike in all other aspects. We would expect:
answer
an increase in the supply of drive through clerks at Jason Burger but no change in demand.
question
If the supply of a resource is fixed, then the resource's total earnings equal:
answer
its economic rent.
question
For a firm which has some power in the product market, the marginal revenue product of the fifth worker is $15 and the price of the last unit of output produced is $5. The firm will hire the fifth worker if the marginal product of the fifth worker is _____.
answer
greater than 3 units of output
question
A guarded barbed wire fence separates East and West Bovinia. Soccer players are paid twice as much in West Bovinia than in East Bovinia. This is an example of _____.
answer
a permanent resource price differential
question
The following graph shows the labor market. The vertical axis measures wage in dollars, and the horizontal axis measures labor in hours. The economic rent in equilibrium is represented by the area _____.
answer
b
question
Suppose 15 workers produce 100 license plates, 16 workers produce 120 license plates, and 17 workers produce 130 license plates. Identify the correct statement.
answer
The marginal product of the sixteenth worker is greater than the marginal product of the seventeenth worker.
question
The following graph shows the labor market. The vertical axis measures wage in dollars, and the horizontal axis measures labor in hours. The tenth unit of labor is earning a wage of:
answer
$8, half of which is economic rent.
question
If the marginal product of labor increases because of a shift of the marginal product curve, it will likely cause:
answer
an increase in labor demand.
question
The following table shows data for a perfectly competitive firm. The first column shows the number of resources employed in production, the second column shows the total product of the firm, and the third column shows its product price. If the wage rate is $44, then the number of workers hired is _____.
answer
five
question
Which of the following resources earns the highest economic rent as a proportion of total earnings?
answer
A resource specialized in one task
question
Gooey Flakes is the only ready-to-eat cereal that has chocolate syrup in each flake. The machine that injects the syrup into the flakes has no alternative uses. Which of the following is true?
answer
All of the machine's earnings are economic rent.
question
Resource owners will supply additional units of a resource as long as:
answer
doing so increases their utility.
question
The difference between the average earnings of eye surgeons and those of janitors is:
answer
an example of a permanent differential caused by differences in the time and money involved in developing the necessary skills.
question
Ten cases of spring water are sold for $6 each, and the marginal product of the last unit of labor is 5. If the price of a case increases from $6 to $8, then the marginal revenue product of the last unit of labor would:
answer
increase by $10.
question
The following graph shows the demand and supply curves of a resource. The equilibrium price of the resource is _____.
answer
$10
question
A change in the market demand of a final good affects:
answer
the demand for the resources used to produce it.
question
If the substitution effect is always greater than the income effect, then an individual's labor supply curve will _____.
answer
always have a positive slope
question
As the wage rate increases, the income effect tends to reduce the quantity of labor supplied to the market.
answer
true
question
Other things equal, the supply of labor will be higher to a job:
answer
that offers more amenities.
question
In many cities, garbage collectors earn more than social workers. What could explain this wage differential?
answer
There is a lesser supply of trash collectors
question
Which of the following explains an increase in demand for labor?
answer
Additional training that increases the productivity of each unit of labor in a market
question
Two workers are employed in the same job by the same firm. However, they are paid different wage rates. This could be explained by differences in:
answer
their marginal products due to differences in ability
question
If a teachers' union negotiates a wage for all college professors above the equilibrium wage rate, the market supply curve of college professors becomes _____.
answer
horizontal, and then it slopes upward
question
If two accountants have had the same education, amount of experience, and they work at the same type of job for the same profit-maximizing firm, which charges its clients a uniform hourly fee, then:
answer
the one who has a higher marginal product should be paid more
question
An appeal to consumers to purchase union-made products represents an attempt to:
answer
increase the demand for union labor
question
Other things equal, the supply of labor will be lower to a job that:
answer
requires advanced skills or education.
question
The process by which union members and the firm's management negotiate a contract is called _____.
answer
collective bargaining
question
Which of the following isNOTa form of nonmarket work?
answer
Babysitting for a fee
question
One significant reason for the declining union membership in the U.S. is:
answer
the structural shift of the economy toward the service sector
question
Unions can increase their wage rates by:
answer
using the threat of a strike
question
If an electricians' union is successful in its attempts to restrict entry into that craft, it will shift:
answer
the supply curve of electricians to the left
question
A large inheritance from a relative will tend to:
answer
shift the individual's labor supply curve inward
question
In a labor negotiation, a mediator:
answer
is an impartial observer.
question
The substitution effect of an increase in the wage rate will:
answer
always lead to an increase in the quantity of labor supplied
question
The figure given below shows a backward-bending labor supply curve for an individual. In the figure below, which of the following is true at a wage rate of $20?
answer
The income effect dominates the substitution effect
question
The average work week in the United States has declined to fewer than 40 hours even though wage rates have been increasing. The best explanation for this phenomenon is that:
answer
the income effect of rising wages outweighed the substitution effect
question
As the interest rate increases, the opportunity cost of _____.
answer
current consumption increases
question
The market value of a bond is _____.
answer
inversely related to the rate of interest on the bond
question
The procedure of determining the present value of payments to be received in the future is known as:
answer
discounting.
question
Intellectual property is _____.
answer
a special form of capital
question
The opportunity cost of producing capital goods is a(n):
answer
decrease in the current production of consumption goods.
question
Entrepreneurship:
answer
is necessary for the success of any business venture.
question
Which of the following is true of entrepreneurs?
answer
They accept the risk of success or failure of a business venture.
question
The Internet has created some special problems for intellectual property. One problem is that:
answer
the price of intellectual property exceeds marginal cost.
question
Which of the following would be true if the market interest rate increases?
answer
The reward for saving would increase, and this would increase saving
question
Other things constant, the supply of loanable funds curve is:
answer
upward sloping because the reward for saving increases as the interest rate increases.
question
In most state-run lotteries, _____.
answer
the present value of the winning amount is less than the amount of dollars won
question
When the expected rate of return from a purchase of equipment is less than the market interest rate, a firm should _____.
answer
not purchase the equipment
question
Andre runs a company that yields a profit of $40,000 per year, and this profit stream is expected to continue indefinitely. If the interest rate equals 8 percent, he will be willing to sell the company at a price of:
answer
$500,000.
question
Identify the correct statement about the market interest rate.
answer
It represents the opportunity cost of investing with either borrowed funds or savings.
question
If you win $1 million in a lottery and are paid in installments, _____.
answer
the present value of these payments equals $1 million if the interest rate is zero
question
An entrepreneur is the residual claimant, which implies that:
answer
he gets as profit the amount that is left after paying all the resources.
question
If Neofuture Corp. sells its shares to the public, the share price tends to:
answer
fluctuate directly with the profit prospects of the company.
question
A $100 annuity means _____.
answer
$100 is received each year for a certain number of years
question
If Neofuture Corp. is a new, profitable company, _____.
answer
after-tax profits are either paid as dividends or reinvested in the corporation
question
If you hold a bond at a time when the market interest rate is increasing, you will find that the bond's value will:
answer
decrease because you will receive a lower price when you sell the bond.
question
The costs of executing a loan agreement, monitoring the loan, and collecting payments are called _____.
answer
administration costs
question
Suppose Penny will receive $2,000 per year forever from her local bank when the prevailing interest rate is 7 percent. The present value of that income stream is approximately _____.
answer
$28,571
question
Production cannot occur without _____.
answer
saving b. government intervention
question
The present value of receiving M dollars in year t when the prevailing interest rate is i is given by the formula _____.
answer
M/(1 + i)t
question
As defined by economists, interest is:
answer
both the amount earned by productive capital and the amount earned by lending money.
question
According to Stigler's search model, a computerized used car search service is likely to:
answer
decrease price dispersion
question
If a firm experiences economies of scope, _____.
answer
its average total cost falls when it produces more than one kind of product
question
Consumers generally consider the process of learning about the efficiency and durability of various brands of refrigerators:
answer
nonmarket work
question
A principal-agent problem is most likely to arise when:
answer
a company outsources its tax computation to a consultancy.
question
According to Coase, the optimal allocation of resources is guided by:
answer
the decisions of a firm's managers when market transaction costs are greater than the firm's internal organization costs
question
Which of the following is an example of a producer taking advantage of economies of scope?
answer
A dairy farmer producing cow's milk and butter
question
The academic dean at Esoteric University hires a philosopher to teach one of the 12 sections of a course called "Why Nerf Balls Ingest Hair." Which of the following is true?
answer
The philosopher is an agent to both the academic dean and the students.
question
According to Ronald Coase, firms emerge when:
answer
transaction costs in the market are more than the cost of hierarchical control
question
There is less of a principal-agent problem between managers and apple pickers than between managers and secretaries because:
answer
productivity is easier to measure in apple picking than in secretarial services
question
Reliable information is:
answer
costly for both producers and consumers
question
Which of these principal-agent relationships is least likely to pose a problem?
answer
An individual hiring a gardener to mow her lawn
question
Among the goods and services mentioned below, the marginal benefit of search is likely to be highest for _____.
answer
cosmetic surgery
question
In order to organize and carry out transactions efficiently, firms alternate between:
answer
profit and revenue maximization
question
The figure given below shows the marginal cost and the marginal benefit of information curves. In the figure given below, the point I1indicates:
answer
common knowledge
question
A firm that produces mouthwash branches out into producing toothpaste. If this expansion reduces its average cost of production, which of the following can be concluded about this firm?
answer
The firm is experiencing economies of scope
question
The timeshare condominium in Florida bought by an individual last year ended up involving many extra costs and restrictions that were not apparent at the time of sale. This problem is a classic example of _____.
answer
hidden characteristics
question
Which of the following is true of the marginal benefit curve for additional information in Stigler's search model?
answer
It slopes downward
question
The used car market may be inefficient because the purchase of a used car often involves:
answer
hidden characteristics
question
Which of these problems is encountered in labor markets where the abilities of the workers are intangible or unmeasurable?
answer
The adverse selection problem
question
Which of these is an example of screening in a job market?
answer
Checking résumés for spelling and typographical errors
question
In the context of a job market, a signal is:
answer
a proxy measure of a job applicant's skills.
question
The marginal benefit of acquiring additional information tends to:
answer
decrease as additional information is obtained
question
Which of the following approaches borrow insights from psychology to help explain economic choices?
answer
Behavioral economics
question
The two types of asymmetric information situations are those with:
answer
hidden characteristics and hidden actions
question
Apple Computers is more likely to continue to use input markets rather than manufacture its own inputs internally when:
answer
switching among input suppliers is easy
question
If a natural monopolist switches to marginal cost pricing from charging a profit-maximizing price, there will be a(n):
answer
increase in the level of output produced by the monopolist
question
The rule of reason:
answer
considers why a certain business practice was adopted and what the effects on competition are before determining whether the practice is illegal.
question
A natural monopolist earns zero economic profit when:
answer
government regulators force it to set price equal to average total cost.
question
Economic regulation leads to a(n):
answer
increase in the market power of existing firms
question
Figure 15.2 shows the cost and revenue curves of a monopolist. The consumer surplus that results if the monopoly is regulated and it charges a price equal to MC is shown by the _____.
answer
triangular area adf
question
Which of the following is true of a natural monopoly?
answer
If regulated, the firm will have a higher level of output than if it was unregulated
question
If an industry currently has a Herfindahl index of 900 and a merger would raise that to 950, then the Department of Justice would:
answer
not challenge the merger because the post-merger index would be less than 2,500.
question
A physicians' professional association supports legislation seeking higher quality medical care. According to the special interest theory of regulation, which of the following groups will benefit the most from this legislation?
answer
Physicians, through increased prices for medical care
question
If a court employs the rule of reason while considering whether a firm is guilty of violating antitrust laws, the court
answer
considers the consequences of the offending practice that the firm engaged in.
question
A tight oligopoly refers to:
answer
an industry in which the top four firms supply more than 60 percent of the market, have stable market shares, and cooperate with each other.
question
U.S. producers faced certain disadvantages as imports rose in 13 major industries studied by Shepherd. The producers initially responded to this by:
answer
seeking trade barriers
question
Which of the following is an example of an effectively competitive market?
answer
An industry that exhibits low concentration, few barriers to entry, and little or no collusion
question
According to William Shepherd's examination of competitive trends in the U.S. economy, a dominant firm:
answer
is a firm with over half the market share and no close rival
question
Which of the following is a possible effect of government regulation on a natural monopolist?
answer
The firm incurs an economic loss
question
Figure 15.2 shows the cost and revenue curves for a monopolist. The consumer surplus that results if the monopoly is unregulated is shown by the _____.
answer
triangular area abc
question
Which of the following didNOTlead to an increase in competition in the United States between 1958 and 1988?
answer
Conglomerate mergers
question
The figure below shows the cost and revenue curves of a natural monopolist. The welfare loss that occurs if the monopoly is unregulated is shown by the area _____.
answer
cef
question
Which of the following best illustrates a vertical merger?
answer
Microsoft merges with Dell
question
Which of the following is a possible outcome if a monopolist is allowed to maximize profit?
answer
The equilibrium price-output combination is inefficient
question
A natural monopoly, such as a local telephone company, is characterized by _____.
answer
economies of scale
question
If an electric company is allowed by regulators to earn only a normal profit, it will produce at the point where _____.
answer
P = AC
question
A natural monopoly exists when throughout the range of market demand:
answer
there exist economies of scale.
question
In which of the following ways can a government assure that a natural monopolist earns zero economic profit?
answer
By setting the price equal to average total cost
question
According to the special interest theory, the licensing of beauticians would be:
answer
desired by some beauticians in order to restrict entry into their profession.
question
Which of the following is a likely result of the deregulation of the airline industry that might benefit consumers?
answer
A decrease in air fares
question
If oligopolists engaged in some sort of collusion, industry output would be _____ and the price would be _____ than under perfect competition.
answer
smaller; higher
question
Differentiate between perfect competition and an oligopoly?
answer
Firms in an oligopoly earn economic profit in the long run, whereas firms in perfectly competitive market earn zero economic profit in the long run.
question
Tacit collusion occurs in industries that:
answer
have price leaders
question
Which of the following is true of firms in monopolistic competition and perfect competition?
answer
Firms can enter and leave the industry with relative ease.
question
If firms in an industry produce differentiated products, they are likely to:
answer
face downward-sloping demand curves
question
Which of the following is most likely produced in a monopolistically competitive market?
answer
Fast food
question
During certain periods in the past few decades, if one of the three major breakfast cereal producers in the United States announced a price increase, the other two announced a similar price increase. This implies that the market for breakfast cereals is a good example of _____.
answer
the price-leadership model of oligopoly
question
In an oligopoly, the demand curve facing an individual firm depends upon the:
answer
behavior of competing firms
question
When firms differentiate their products, they:
answer
frequently create artificial or superficial differences among products, thus raising production costs.
question
Which of the following characteristics does perfect competition share with monopolistic competition?
answer
Zero long-run economic profit
question
Table 10.1 shows the output, price, and total cost for a monopolistic competitor. The profit-maximizing price for the firm is:
answer
$21
question
If a firm in an industry achieves the minimum efficient scale at a low cost, then:
answer
competition in the industry is likely to increase
question
The term "monopolistic competition":
answer
denotes an industry characterized by many sellers of differentiated products
question
The outcome of a game among oligopolists is dependent upon:
answer
the predicted response of competitors
question
If a leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the company is most likely trying to create a barrier to entry by:
answer
crowding out new entrants
question
Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____.
answer
$5,700
question
Monopolistically competitive firms do not achieve allocative efficiency in the long run because:
answer
price is greater than marginal cost
question
Identify a statement that is true of a cartel.
answer
In a cartel, firms with lower average costs often earn higher profits
question
The use of game theory in studying the behavior of firms in an oligopoly implies that firms:
answer
may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome.
question
Figure 10.5 shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm. The profit-maximizing (or loss-minimizing) price for the firm is _____.
answer
$3.25
question
A cartel is:
answer
a group of oligopolistic firms that engage in collusion
question
Economic analysis of product differentiation leads to all of the following conclusions except one. Which is the exception?
answer
Product differentiation must be based on real, substantive differences among products
question
Figure 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the long run, the firm can expect:
answer
to earn zero economic profit
question
To maximize cartel profit, members must allocate output so that the marginal cost for the final unit produced by each firm is:
answer
identical.
question
All of the following are examples of product differentiation except one. Which of the following is the exception?
answer
Lowering the price of a good for a special sale
question
Which of the following is true of marginal revenue earned by a non price-discriminating monopolist that charges a single price?
answer
Marginal revenue earned by a monopolist is less than the price of its product
question
The figure below shows the cost and revenue curves faced by a monopolist. If the monopolist practices perfect price discrimination, deadweight loss will be _____.
answer
zero
question
For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is:
answer
less than $140
question
Which of the following is most likely to be true of a monopoly in long-run equilibrium if it enjoys a patent and earns economic profit in the short run?
answer
It will earn a positive economic profit in the long run.
question
Monopolists can earn positive economic profits in the long run because they are more productively efficient than perfectly competitive firms.
answer
false
question
A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. Which of the following can be concluded about the firm's marginal revenue for this output level?
answer
Marginal revenue is less than $10 but more than zero
question
The demand curve facing a non-discriminating monopolist:
answer
is the same as its average revenue curve
question
Which of the following is true of the profit earned by a monopolist?
answer
Normal profit is ensured where price is equal to average total cost
question
Unlike perfectly competitive firms, monopolists:
answer
earn long-run economic profits.
question
Which of the following is true for a monopolist that engages in perfect price discrimination?
answer
Perfect price discrimination allows the monopolist to reap the entire gains from production.
question
Which of the following isnota condition for price discrimination?
answer
The presence of strong diseconomies of scale
question
Which of these is a similarity between a monopolist that does not practice price discrimination and a perfectly competitive firm?
answer
Price equals average revenue at all output rates for both types of firms.
question
A natural monopoly forms when a firm has:
answer
a downward-sloping long-run average cost curve
question
The figure below shows the cost and revenue curves faced by a profit-maximizing monopolist. Which of the following areas shown in the figure given below represents consumer surplus under monopoly?
answer
Area a
question
The figure below shows the cost and revenue curves for a monopolist that does not practice price discrimination. The consumer surplus at the profit-maximizing level of output is:
answer
represented by the area under the demand curve and above the price line corresponding to $136
question
The figure below shows the cost and revenue curves faced by a monopolist. The demand curve faced by the monopolist at the profit-maximizing output is:
answer
price elastic.
question
The figure below shows the cost and revenue curves for a monopolist. The output level that is most likely to achieve allocative efficiency in this market is _____.
answer
884 units
question
Which of the following is most likely to be considered a natural monopoly?
answer
A municipal water company
question
According to the information provided in the table below, marginal revenue from the sixth unit of output is:
answer
‒$40
question
A major fruit juice manufacturer fails in its attempt to engage in price discrimination between students and all other consumers of fruit juice. Which of the following explanations is most likely to account for this failure?
answer
The students resold the juice to other consumers.
question
The figure below shows the cost and revenue curves faced by a profit-maximizing monopolist. If the monopolist engages in perfect price discrimination, the price of the monopolist's good will:
answer
vary between $212 and $120
question
The figure below shows the cost and revenue curves for a monopolist. Assume that the monopolist does not shut down production in the short run. The profit-maximizing price and output for this non-price discriminating monopolist are:
answer
$4 and 7 units, respectively.
question
The table below shows the demand schedule for a monopolist. Marginal revenue associated with the sale of the fourth unit of output is _____.
answer
$30
question
The true deadweight loss created by a monopolist that does not practice discrimination is most likely to be less than the loss indicated by the shaded area in the figure below, when:
answer
the monopolist charges lower prices to discourage competition
question
The table below shows the price and output combinations at different output levels for a non price-discriminating monopolist. The profit-maximizing output for this monopolist is _____.
answer
3 units
question
A farmer in the Midwest who produces wheat faces a horizontal demand curve because:
answer
the quantity supplied by him is so small relative to the market that it has no impact on the market price for wheat.
question
Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. What is likely to happen to a typical firm in the long run?
answer
The equilibrium price will be higher in the long run
question
Which of the following is true at the quantity at which average total cost equals average revenue?
answer
Economic profit is zero
question
Which of the following characterizes a perfectly competitive market?
answer
Perfect information
question
The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering services from Raton to Santa Fe. It has estimated that the total cost of the trip will be $400, of which $150 is the fixed cost, which it has already paid. The company expects an increase in revenue by $275 from the trip. The Hound Dog Bus Co. should:
answer
offer this service because the additional revenue exceeds the additional cost of this service
question
Suppose a firm finds it is better off operating than shutting down in the short run. At the quantity at which marginal cost equals marginal revenue, _____.
answer
profit is maximized
question
Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following is likely to happen?
answer
The firm will not be able to sell any of its output
question
Which of the following is true for a perfectly competitive firm in long-run equilibrium?d
answer
Marginal revenue (MR) = Marginal cost (MC) = Average total cost (ATC)
question
The price that represents the shutdown point for a perfectly competitive firm corresponds to the _____.
answer
lowest point on the average variable cost curve
question
In the long run, the entry of new firms in a competitive industry:
answer
eliminates economic profits
question
The total revenue curve for a perfectly competitive firm_____.
answer
is a straight line that starts from the origin and slopes upward
question
Which of the following is most likely to be an increasing-cost industry?
answer
An industry that is a major buyer in the markets for the inputs it uses
question
The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The equilibrium price in this market is _____.
answer
$100
question
If every firm in a market is a price taker, then which of the following is true?
answer
There are a large number of sellers in the market
question
Allocative efficiency occurs in markets when:
answer
the marginal benefit that consumers attach to the last unit purchased equals the opportunity cost of the resources employed to produce that unit
question
Perfectly competitive firms will leave the industry that they are operating in if they _____.
answer
are unable to cover their variable costs
question
The total revenue curve in the following figure reflects _____.
answer
the fact that perfectly competitive firms are price takers
question
Economists assume that firms seek to:
answer
maximize economic profit
question
To achieve allocative efficiency, firms:
answer
produce the output consumers value most.
question
Marginal revenue is defined as:
answer
the change in total revenue divided by the change in quantity
question
Economic profit is defined as _____.
answer
total revenue minus total costs
question
If a firm is experiencing diminishing marginal returns to labor, then which of the following statements is true?
answer
The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.
question
The marginal product of labor is the _____.
answer
change in output from using one more unit of labor
question
If labor is a firm's only variable input, marginal cost ultimately depends on:
answer
how much output each worker produces
question
Unlike implicit costs, explicit costs:
answer
are actual cash payments.
question
Table 7.4 shows labor, total product, and marginal product for a firm. In the table below, marginal returns increase with the hiring of up to _____ workers.
answer
Four
question
When a firm is experiencing diminishing marginal returns, its marginal cost _____.
answer
Rises
question
Amanda, age 6, opens a lemonade stand. She makes all the lemonade from a mix she found in her parents' pantry. Her stand is an old box she found in the garage. The pitcher and paper cups were taken from the kitchen. Which of the following is true?
answer
Amanda's explicit costs are zero.
question
When marginal product is negative, the slope of the total product curve must be negative.
answer
true
question
An implicit cost is:
answer
an opportunity cost
question
Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The accounting profit earned by Ernie was _____.
answer
40,000
question
Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the third unit of labor.
answer
25 pairs of shoes
question
Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should:
answer
stay with his new firm because his economic profit is positive.
question
Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor.
answer
25 pairs of shoes
question
Accounting profit is:
answer
never less than economic profit.
question
Total fixed cost divided by the level of output yields the _____.
answer
average fixed cost per unit
question
John moved his office from a building he was renting downtown to the carriage house he owns behind his house. Which of the following statements shows how his costs change?
answer
His explicit costs fall, while his implicit costs will rise.
question
Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. The minimum amount of revenue per year that would make it worthwhile, financially, for Maryann and Don to run the deli is _____.
answer
$76,000
question
The law of diminishing marginal returns states that:
answer
as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes.
question
Which of the following statements is true?
answer
If the marginal product of labor diminishes, the total cost rises at a diminishing rate.
question
Negative marginal utility implies that:
answer
total utility decreases as additional units of a good are consumed
question
Fernando allocates his lunch money between pizza and Coke. A slice of pizza costs $1.50 and a can of Coke costs $1. The marginal utility of the last slice of pizza Fernando ate that day was 30 units, and the marginal utility of the last can of Coke was 25 units. If Fernando decides to spend all of his lunch money, then identify the correct statement.
answer
Fernando's total utility would have been greater if he had purchased more Coke and less pizza.
question
Marginal utility is the:
answer
additional satisfaction obtained from consuming one more unit of a good
question
Dale spends his entire budget in such a way that the marginal utility per dollar spent on each good is identical. Which of the following is true?
answer
He will reduce his utility if he reallocates his income
question
"The second glass of Evian water was very good. May I have another?" Which of the following is necessarily true regarding this statement?
answer
The marginal utility of the second glass of water was positive
question
The following table shows the total utility and marginal utility derived from the consumption of scones. The first column of the table represents the number of scones a consumer consumes in a day. The second column of the table presents the total utility derived from that consumption, and the third column shows the marginal utility of each additional scone. The total utility derived from the consumption of five scones is _____ units.
answer
30
question
As long as scarcity exists, _____.
answer
income and product prices should both be considered for consumers' utility maximization
question
A consumer's utility is maximized when the marginal utilities derived from additional units of goods:
answer
are exactly proportional to their market prices
question
The difference between the maximum amount a person is willing to pay for a given quantity of a good and the amount actually paid for that quantity is known as:
answer
consumer surplus
question
"I don't feel so good; I shouldn't have had that last doughnut." Which of the following supports this statement?
answer
The marginal utility of the last doughnut was negative
question
Diminishing marginal utility means that:
answer
as one consumes more of a good, other things constant, the additional satisfaction obtained from each additional unit of the good tends to fall
question
_____ can be used to compare the effects of different market structures, tax structures, and public programs on consumer well-being.
answer
Consumer surplus
question
Which of the following is true of units of utility?
answer
They cannot be compared across consumers
question
Dale is willing to pay $300 for a pair of Rollerblades and he purchases them on sale for $200. His consumer surplus is valued at:
answer
$100
question
The cost of consumption has two components, _____.
answer
the money price and the time price
question
If marginal utility is positive, then total utility is:
answer
increasing
question
A consumer's willingness to pay additional money for time-saving goods depends primarily on:
answer
the opportunity cost of his or her time
question
Which of the following is true of "cabin fever"?
answer
Each additional cold day adds disutility.
question
Which of the following is true when the price of a good is zero?
answer
A consumer will consume additional units of the good as long as marginal utility is positive
question
When total utility falls, marginal utility is _____.
answer
negative
question
Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180. The $20 saved is:
answer
his consumer surplus
question
According to the law of _____, the marginal utility received from each additional unit of a good consumed declines, other things constant.
answer
diminishing marginal utility
question
The following table shows the total utility derived from consumption of a good. The first column of the table shows the number of units of the good consumed in a day, and the second column of the table shows the total utility derived from that consumption. The marginal utility of an additional unit of the good diminishes after consumption of the _____ unit of the good.
answer
second
question
If a good is offered free of charge, one would:
answer
stop consuming it when its marginal utility has declined to zero
question
The following table shows the total utility and marginal utility derived from the consumption of scones. The first column of the table represents the number of scones a consumer consumes in a day. The second column of the table presents the total utility derived from that consumption, and the third column shows the marginal utility of each additional scone. The marginal utility of the fourth scone is _____ units.
answer
4
question
If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.
answer
True
question
A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _____.
answer
demand is inelastic
question
If demand is elastic, a decrease in price leads to a decrease in total revenue.
answer
False
question
If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is _____.
answer
Inelastic
question
Figure 5.10 shows two upward-sloping linear supply curves that pass through the origin. The price elasticity of supply between $20 and $40 on the supply curve S' is _____.
answer
1
question
The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:
answer
the cross-price elasticity of demand between film and cameras
question
Demand for a necessity, such as food, is:
answer
both income and price inelastic.
question
If an increase in the price of peanut butter causes a decline in the demand for jelly, then:
answer
the goods are complements
question
Figure 5.3 shows a linear demand curve. As you move from point A to point B along the demand curve, total revenue _____ and the demand is _____.
answer
Increases; elastic
question
Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.
answer
True
question
Elasticity is always _____.
answer
independent of the units of measurement for price and quantity
question
A good that takes up a very large percentage of a consumer's budget will tend to have:
answer
an elastic demand
question
An inferior good is:
answer
one that consumers buy less of as their income rises
question
Luxury goods are:
answer
income elastic.
question
The cross-price elasticity of demand is used to determine whether:
answer
two products are substitutes or complements
question
Suppose the price elasticity of demand for your economics textbook is −1. If the publisher raises the price by 5 percent:
answer
total revenue will not change
question
For which of the following goods is the value of income elasticity most likely to be negative?
answer
Macaroni and cheese
question
As the economy recovers from a recession, we should expect that the:
answer
demand for inferior goods will fall and the demand for normal goods will rise
question
The price elasticity of demand for milk when quantity is measured in gallons will be _____ the price elasticity when quantity is measured in quarts.
answer
the same as
question
Which of the following goods will have a higher price elasticity of demand?
answer
A good with many substitutes
question
If supply is perfectly elastic, the supply curve is:
answer
horizontal
question
Substitutes are pairs of goods that have a positive cross-price elasticity of demand.
answer
true
question
The price elasticity of demand helps determine the effect of price changes on a firm's:
answer
revenue.
question
Figure 5.3 shows a linear demand curve. Between points C and D, the demand is:
answer
inelastic
question
A university administration's decision to raise tuition in order to increase revenue will be successful if:
answer
demand is inelastic.
question
Which of these is likely to increase the supply of tomatoes in the market?
answer
A decrease in the cost of fertilizer for tomato plants
question
Suppose a market is in equilibrium. If a price floor is set in this market below the equilibrium price it is likely that:
answer
the market will remain in equilibrium.
question
In the figure given below, a price floor set at $20.00 will:
answer
have no impact on the equilibrium price and quantity.
question
A change in money income of consumers will:
answer
shift the market demand curve for housing.
question
Which of the following will cause the demand curve for gasoline to shift leftward?
answer
An increase in the price of cars
question
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer, then:
answer
the price of aspartame will increase.
question
In the figure given below, the number of units of rented apartments being supplied in the market when the maximum rent is fixed by the government at $750 is _____.
answer
50,000 units
question
Which of these can possibly account for a decrease in the demand for peanut butter, a normal good?
answer
A substantial increase in the price of bread
question
Figure 4.3 shows the supply curves for baby formula. In the figure given below, which of the following changes is likely to result from an increase in the number of firms producing baby formula?
answer
A rightward shift of the supply curve from S1 to S2
question
If we say that demand for a good has increased, we mean that there has been:
answer
a rightward shift of the demand curve.
question
The most important characteristic of the equilibrium price is that it:
answer
clears the market, leaving neither a surplus nor a shortage.
question
A new cattle feed has been found to increase the amount of milk each cow produces. Which of these is a likely impact in the market for milk, if this cattle feed is used by most of the dairies?
answer
A rightward shift of the supply curve for milk
question
The table given below shows the quantity supplied and the quantity demanded for a good at different prices. If the price of the good described in the table below is $1.60, then an economist would expect the:
answer
price to decrease to $1.50.
question
If there is a shortage in the market for athletic shoes, _____.
answer
the price of athletic shoes will increase to eliminate the shortage
question
Which of the following will lead to an increase in quantity supplied of a given good?
answer
An increase in the price of the good
question
Over the last few years, demand for DVDs has increased, but their equilibrium price has fallen. Which of the following, if true, best explains this situation?
answer
The supply of DVDs increased more than the increase in demand for DVDs.
question
Markets reduce transactions costs:
answer
by decreasing the time spent searching for information about goods and services.
question
In case of a normal good, an increase in consumers' incomes would shift the:
answer
demand curve outward.
question
When a market is in equilibrium:
answer
market forces exert no pressure for change in price.
question
The table given below shows the quantity supplied and the quantity demanded for a good at different prices. If the market price of the good is $1.20, there will be a _____.
answer
shortage of 60 units
question
In a rental market like the one in the figure given below, a government-imposed rule that rent cannot exceed $750 per month is referred to as:
answer
a price ceiling.
question
Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) a recession in the economy that decreases consumers' income. Which of the following can be predicted about this market with certainty?
answer
Equilibrium price will fall.
question
Which of the following is most likely to cause the demand for ice cream, a normal good, to decrease?
answer
A decrease in consumer income
question
When quantity demanded of a good exceeds the quantity supplied at the prevailing market price, _____.
answer
the price of the good will tend to increase
question
Which of the following is most likely to shift the supply curve for a product to the right?
answer
An improvement in the technology for producing the good
question
Which of the following is not a government transfer program?
answer
Income Taxes
question
Which of the following is an example of a durable good?
answer
Binoculars
question
Brian is the sole proprietor of Long Voyage Software, which generates maps for wilderness trips. He started the business with an initial investment of $80,000. A faulty map caused one customer to get hopelessly lost. After her rescue and recuperation, she sued Long Voyage for $5,000,000. Which of the following is true?
answer
If $5,000,000 is awarded, Brian is personally responsible for paying all of it.
question
Household production is more likely to occur when:
answer
the opportunity cost of household work is relatively small
question
In the United States since World War II, there has been:
answer
a dramatic increase in the number of married women in the labor force
question
The fastest-growing component of U.S. personal consumption is services.
answer
true
question
The movement in U.S. population from the farms to urban areas was caused primarily by:
answer
a sharp increase in farm productivity
question
Contracts are enforced by:
answer
government through the judicial system.
question
Which of the following is not primarily a function of the federal government?
answer
Higher education
question
Which of the following is a defining characteristic of a public good?
answer
It is freely available to everyone once it is produced.
question
Which of the following would indicate that a tax is regressive?
answer
Both high-income and low-income people pay $200 each.
question
Which of the following taxes is based on the ability-to-pay principle?
answer
Income taxes
question
During recent elections, consumer groups in various states attempted to get the sales tax on all medicines and drugs removed. They argued that such a tax is severely regressive. What is the economic interpretation of their statement?
answer
The poor pay a higher percentage of their income in taxes on medicine and drugs than do the rich.
question
Household income is spent on all of the following except one. Which is the exception?
answer
Dividends
question
Nonprofit, or not-for-profit, firms:
answer
often pursue goals other than profit maximization.
question
Which of the following have their profits taxed twice?
answer
Corporation
question
Which form of business organization accounts for the largest proportion of business sales in the United States?
answer
Corporation
question
The corporate form of business organization:
answer
gives firm owners limited liability.
question
Of the three levels of government in the United States:
answer
local governments are primarily responsible for primary and secondary education.
question
If one US dollar costs 0.8 Euros, then 1 Euro must cost _____ US dollars.
answer
1.25
question
Which of the following is most likely to be a partnership?
answer
The accounting firm of Hope and Williams
question
Economists generally assume that:
answer
households act to maximize utility.
question
The difference between fiscal policy and monetary policy is that:
answer
monetary policy involves regulation of the money supply but fiscal policy involves government spending and taxing.
question
Restricting imports of Brazilian shoes will:
answer
raise the price of both Brazilian and domestically produced shoes.
question
The funds to pay for police protection are usually raised through taxation because:
answer
police protection would be hard to provide exclusively to those who voluntarily pay for it.
question
Adam Smith believed that people's pursuit of their own self-interests:
answer
tended to promote general welfare.
question
A medium of exchange must be:
answer
universally acceptable in exchange for goods and services
question
A production possibilities frontier can shift outward for all of the following reasons except:
answer
a decrease in the size of the labor force.
question
A test is scheduled for Monday morning, and you went to a party on Sunday night. If you hadn't
attended the party, you could have studied for the test or gone to a movie. Which of the following is
true regarding your opportunity cost?
attended the party, you could have studied for the test or gone to a movie. Which of the following is
true regarding your opportunity cost?
answer
From the above information, it's not possible to determine the opportunity cost of attending the
party.
party.
question
Barter occurs when:
answer
one product is exchanged directly for another product.
question
Bill trades a ginger snap for a chocolate chip cookie. This is an example of:
answer
Barter
question
Don can produce 10 pens or 20 pencils in one hour while Bob can produce 5 pencils or 15 pens
in one hour. Which of the following statements is correct?
in one hour. Which of the following statements is correct?
answer
Bob has an absolute advantage over Don in the production of pens.
question
If all resources are used efficiently to produce goods and services, a nation will find itself
producing:
producing:
answer
somewhere on its production possibilities frontier.
question
If an economy is operating at a point inside the production possibilities frontier, then:
answer
some of the nation's resources are unemployed.
question
If dairy farmers use automatic milking machines instead of milking by hand, which economic
question does their decision answer?
question does their decision answer?
answer
How to produce?
question
In a command economy, _____.
answer
in theory, individual choices are reflected in collective decisions and decisions are made by
central planners.
central planners.
question
In economics, specialization means:
answer
focusing efforts on a particular product or a single task.
question
In one week, Mohammed can knit 5 sweaters or bake 240 cookies. In one week, Aisha can knit
15 sweaters or bake 480 cookies. Mohammed's opportunity cost baking one cookie is:
15 sweaters or bake 480 cookies. Mohammed's opportunity cost baking one cookie is:
answer
1/48 of a sweater.
question
In one week, Mohammed can knit 5 sweaters or bake 240 cookies. In one week, Aisha can knit
15 sweaters or bake 480 cookies. Which of the following is correct?
15 sweaters or bake 480 cookies. Which of the following is correct?
answer
Aisha has an absolute advantage in both tasks and a comparative advantage in knitting sweaters.
question
Money facilitates trade because:
answer
it serves as a medium of exchange.
question
Opportunity cost is defined as the:
answer
value of the best alternative not chosen.
question
Points outside the production possibilities frontier represent:
answer
currently unattainable combinations of outputs.
question
Sunk costs:
answer
should not be considered when making economic decisions
question
Suppose you have an hour before your next class starts. You can either read a book, get
something to eat, or take a nap. The opportunity cost of getting something to eat is:
something to eat, or take a nap. The opportunity cost of getting something to eat is:
answer
impossible to determine because the most preferred alternative is not known.
question
The division of labor increases productivity because:
answer
tasks can be assigned according to individual abilities
question
The figure given below shows the production possibilities frontier for education and food. In
The opportunity cost of moving from point c to point b is
The opportunity cost of moving from point c to point b is
answer
22 units of education
question
The figure given below has four graphs showing the production possibilities frontier for capital
goods and consumer goods. Which of the graphs below best illustrates the impact on the production
possibilities frontier of a decrease in unemployment
goods and consumer goods. Which of the graphs below best illustrates the impact on the production
possibilities frontier of a decrease in unemployment
answer
d. (one line)
question
The figure below shows the production possibilities frontier for Good A and Good B. In the
figure below, if all the economy's resources are used efficiently to produce only good B, then the
economy will be at point:
figure below, if all the economy's resources are used efficiently to produce only good B, then the
economy will be at point:
answer
g. (highest point on line)
question
The U.S. economy is best characterized as a:
answer
mixed economy.
question
Which economic question does the decision to give all of the butter an economy produces to
the homeless answer?
the homeless answer?
answer
For whom to produce?
question
Alan is a retired economist who enjoys building toy rains for his grand kids. He uses a workbench and tools from his garage. lumber he bought from the lumber store for $10, and varnish and paint he had left over from another project last year. since retired economist is always an economist, which of the following statements does he make about building toy trains?
answer
I'm using resources to build the toy trains
question
A fallacy of composition involves assuming that
answer
what is true for any individual component in a group is true for the group as a whole.
question
A good or service is considered scarce if
answer
The amount people desire exceeds the amount available at a zero price
question
A hypothesis is
answer
A prediction of what will occur given certain assumptions
question
Consumers need information to make good choices. In the context of this information, which of the following is correct?
answer
Information is scarce & therefore valuable
question
Economists believe that
answer
Concern for the welfare of others is consistent with the concept of self-interest.
question
Economists believe that individuals respond in a predictable way to changes in costs & benefits. The term that best describes this benefit is
answer
Rational behavior
question
Environmentalists have continually argued for the use of alternatives to fossil fuels to generate energy. Harnessing widn power by settignup wind farms had been one alternaive proposed and implemented. As it is now known that these wind farms lead to the slicing and dicing of migratory birds and the decimation of the local bat population, we could say that environmentalists have committed the
answer
Mistake of ignoring secondary effects.
question
If a business produces and sells only one unit of a good, its profit would be the
answer
Price of the product minus the cost of the resources used to produce the product.
question
In economics, capital is defined as
answer
Human creations used in the production process.
question
In economics, the term marginal usually refers to
answer
a small change in an economic variable
question
Someone who committed the association is a causation fallacy might conclude that
answer
event B, which followed event A, was caused by the event A.
question
The difference between a good and a service is that
answer
A good is tangible, but a service is not
question
There should be less discrimination against the elderly, this is an example of
answer
Normative statement
question
Which of the following is a positive statement
answer
When the national unemployment rate is 7%, the unemployment rate among inner-city youth is often close to 40%
question
Which of the following is an example of a normative economic statement?
answer
The federal government's total spending should be reduced.
question
Which of the following would an economist classify as a physical capital?
answer
A lawyer's Laptop
question
Which of the following broad categories are resources divided into
answer
Natural resources, Labor, capital, and entrepreneurial ability
question
Which of the following sentences is the best example of scarcity of time
answer
Alexander is doing homework instead of the movies with friends
question
Which of the following is a service
answer
An intangible activity that satisfies human wants
question
Which of the following is an example of a positive economic statement
answer
An increase in the price of gasoline will cause a reduction in the amount of gasoline purchased
question
Which of the following is an example of a normative economic statement
answer
Women should earn the same income as men
question
You want to sell your old iPad that you no longer use, and your cousin wants to give you $300 for it. if you decide to sell your iPad to your cousin, you'll have to pay $40 for shipping the iPad to your cousin. As a rational decision maker, you should
answer
Sell it because the marginal benefit is greater than the marginal cost
question
Your best friend buys you lunch on you birthday. You think this was not a free lunch because
answer
The resources used to produce the lunch were not available to satisfy other wants
question
Your friend notices that the U.S auto production and U.s population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. you gently point out to him that he
answer
Has committed the fallacy that association is causation
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