question
Other things constant, a decrease in the demand for computers will
a. increase the price of computers.
b. increase the quantity supplied of computers.
c. increase the demand for computer manufacturing workers.
d. decrease the demand for computer manufacturing workers.
a. increase the price of computers.
b. increase the quantity supplied of computers.
c. increase the demand for computer manufacturing workers.
d. decrease the demand for computer manufacturing workers.
answer
d. decrease the demand for computer manufacturing workers.
question
When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because
a. the market price of the product will fall in response to the subsidy.
b. the market price of the product will rise in response to the subsidy.
c. the market price of the product will not change in response to the subsidy.
d. producers will reduce the supply of the product.
a. the market price of the product will fall in response to the subsidy.
b. the market price of the product will rise in response to the subsidy.
c. the market price of the product will not change in response to the subsidy.
d. producers will reduce the supply of the product.
answer
a. the market price of the product will fall in response to the subsidy.
question
Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?
a. Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line.
b. Waiting in line imposes a cost on the consumer; paying higher prices does not.
c. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output.
d. Waiting in line benefits consumers at the expense of producers.
a. Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line.
b. Waiting in line imposes a cost on the consumer; paying higher prices does not.
c. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output.
d. Waiting in line benefits consumers at the expense of producers.
answer
c. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to
question
When a price floor is above the equilibrium price,
a. quantity demanded will exceed quantity supplied, so there will be a shortage.
b. quantity supplied will exceed quantity demanded, so there will be a surplus.
c. the market will be in equilibrium.
d. This is a trick question because price floors are generally set below the equilibrium price.
a. quantity demanded will exceed quantity supplied, so there will be a shortage.
b. quantity supplied will exceed quantity demanded, so there will be a surplus.
c. the market will be in equilibrium.
d. This is a trick question because price floors are generally set below the equilibrium price.
answer
b. quantity supplied will exceed quantity demanded, so there will be a surplus.
question
Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would
a. create a surplus of rental housing.
b. promote a rapid increase in the future supply of housing.
c. result in poor service and quality deterioration of many rental units.
d. lead to a reduction in housing discrimination against minorities.
a. create a surplus of rental housing.
b. promote a rapid increase in the future supply of housing.
c. result in poor service and quality deterioration of many rental units.
d. lead to a reduction in housing discrimination against minorities.
answer
c. result in poor service and quality deterioration of many rental units.
question
Which of the following is the most likely result of an increase in the minimum wage?
a. an increase in the employment of unskilled workers
b. a decrease in the number of workers seeking minimum wage jobs
c. an increase in the demand for unskilled workers
d. a decrease in the employment of unskilled workers
a. an increase in the employment of unskilled workers
b. a decrease in the number of workers seeking minimum wage jobs
c. an increase in the demand for unskilled workers
d. a decrease in the employment of unskilled workers
answer
d. a decrease in the employment of unskilled workers
question
The cost of a tax will be primarily borne by the sellers when the
a. demand for the product is highly inelastic and supply is relatively elastic.
b. demand for the product is highly elastic and the supply is relatively inelastic.
c. tax is legally (statutorily) imposed on the seller of the product.
d. tax is legally (statutorily) imposed on the buyer of the product.
a. demand for the product is highly inelastic and supply is relatively elastic.
b. demand for the product is highly elastic and the supply is relatively inelastic.
c. tax is legally (statutorily) imposed on the seller of the product.
d. tax is legally (statutorily) imposed on the buyer of the product.
answer
b. demand for the product is highly elastic and the supply is relatively inelastic.
question
If there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer?
a. price increases; quantity decreases
b. price decreases; quantity decreases
c. price increases; quantity increases
d. price decreases; quantity increases
a. price increases; quantity decreases
b. price decreases; quantity decreases
c. price increases; quantity increases
d. price decreases; quantity increases
answer
a. price increases; quantity decreases
question
The more elastic the supply of a product, the more likely it is that the
a. burden of a tax on the product will fall on sellers.
b. burden of a tax on the product will fall on buyers.
c. burden of a tax on the product will fall equally on both buyers and sellers.
d. deadweight loss of the tax will be smaller.
a. burden of a tax on the product will fall on sellers.
b. burden of a tax on the product will fall on buyers.
c. burden of a tax on the product will fall equally on both buyers and sellers.
d. deadweight loss of the tax will be smaller.
answer
b. burden of a tax on the product will fall on buyers.
question
The Laffer curve illustrates the concept that
a. an increase in marginal tax rates will always cause tax revenues to increase.
b. an increase in marginal tax rates will always cause tax revenues to decrease.
c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
d. when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.
a. an increase in marginal tax rates will always cause tax revenues to increase.
b. an increase in marginal tax rates will always cause tax revenues to decrease.
c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
d. when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.
answer
c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
question
If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.
answer
d. increase his spending on cola and decrease his spending on shirts.
question
A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to
a. spend more on sugar.
b. spend less on sugar.
c. spend the same amount on sugar.
d. consume more goods like coffee and tea that are complements of sugar.
a. spend more on sugar.
b. spend less on sugar.
c. spend the same amount on sugar.
d. consume more goods like coffee and tea that are complements of sugar.
answer
a. spend more on sugar.
question
Which of the following would be the best example of consumer surplus?
a. Jane does not get cell-phone service because she feels that it is worth less than the $30 a month fee.
b. Sam pays $8 for a haircut that is worth $10 to him.
c. Ralph buys a house for $104,000, the maximum amount that he would be willing to pay for it.
d. Sue purchases a book for $20 and uses a credit card to pay for it.
a. Jane does not get cell-phone service because she feels that it is worth less than the $30 a month fee.
b. Sam pays $8 for a haircut that is worth $10 to him.
c. Ralph buys a house for $104,000, the maximum amount that he would be willing to pay for it.
d. Sue purchases a book for $20 and uses a credit card to pay for it.
answer
b. Sam pays $8 for a haircut that is worth $10 to him.
question
"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects
a. the budget constraint.
b. consumer irrationality.
c. the second law of demand: Price elasticity increases with time.
d. the law of diminishing marginal utility.
a. the budget constraint.
b. consumer irrationality.
c. the second law of demand: Price elasticity increases with time.
d. the law of diminishing marginal utility.
answer
d. the law of diminishing marginal utility.
question
If Sarah's income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is
a. 0.5.
b. 1.0.
c. 2.0.
d. Not enough information is given to answer this question.
a. 0.5.
b. 1.0.
c. 2.0.
d. Not enough information is given to answer this question.
answer
c. 2.0.
question
Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that
a. tomatoes are a necessity while salt is a luxury.
b. it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes.
c. salt will not spoil as easily as fresh tomatoes.
d. more good substitutes exist for fresh tomatoes than for salt.
a. tomatoes are a necessity while salt is a luxury.
b. it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes.
c. salt will not spoil as easily as fresh tomatoes.
d. more good substitutes exist for fresh tomatoes than for salt.
answer
d. more good substitutes exist for fresh tomatoes than for salt.
question
. Suppose the state of New York imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity purchases declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to
a. 0.20.
b. 0.67.
c. 1.50.
d. 3.00.
a. 0.20.
b. 0.67.
c. 1.50.
d. 3.00.
answer
b. 0.67.
question
Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for DVD players is
a. 0.25.
b. 0.375.
c. 1.0.
d. 2.67.
e. 4.0.
a. 0.25.
b. 0.375.
c. 1.0.
d. 2.67.
e. 4.0.
answer
d. 2.67.
question
If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be
a. elastic.
b. of unitary elasticity.
c. inelastic.
d. equal to 0.5.
a. elastic.
b. of unitary elasticity.
c. inelastic.
d. equal to 0.5.
answer
b. of unitary
question
If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by
a. the substitution effect.
b. the income effect.
c. the highly elastic demand for gasoline.
d. all of the above.
a. the substitution effect.
b. the income effect.
c. the highly elastic demand for gasoline.
d. all of the above.
answer
b. the income effect.
question
Which of the following is most likely to be an implicit cost of production?
a. property taxes on a building owned by the firm
b. transportation costs paid to a trucking supplier
c. rental payments for a building utilized by the company and rented from another party
d. interest income foregone on funds invested in the firm by the owners
a. property taxes on a building owned by the firm
b. transportation costs paid to a trucking supplier
c. rental payments for a building utilized by the company and rented from another party
d. interest income foregone on funds invested in the firm by the owners
answer
d. interest income foregone on funds invested in the firm by the owners
question
Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?
a. They recognize that operational efficiency promotes the public interest.
b. As residual claimants, owners will receive a higher income from increased efficiency.
c. The owners will be able to keep production costs low by providing free managerial services to the firm.
d. The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.
a. They recognize that operational efficiency promotes the public interest.
b. As residual claimants, owners will receive a higher income from increased efficiency.
c. The owners will be able to keep production costs low by providing free managerial services to the firm.
d. The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.
answer
b. As residual claimants, owners will receive a higher income from increased efficiency.
question
The law of diminishing returns
a. explains why marginal cost eventually increases as output expands.
b. implies that average fixed cost will remain unchanged as output expands.
c. is true for physical production activities but not for activities such as studying.
d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.
a. explains why marginal cost eventually increases as output expands.
b. implies that average fixed cost will remain unchanged as output expands.
c. is true for physical production activities but not for activities such as studying.
d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.
answer
a. explains why marginal cost eventually increases as output expands.
question
Which of the following represents a long-run adjustment?
a. the hiring of four additional cashiers by a supermarket
b. a cutback on purchases of coke and iron ore by a steel manufacturer
c. construction of a new assembly-line plant by a car manufacturer
d. the extra dose of fertilizer used by a farmer on his wheat crop
a. the hiring of four additional cashiers by a supermarket
b. a cutback on purchases of coke and iron ore by a steel manufacturer
c. construction of a new assembly-line plant by a car manufacturer
d. the extra dose of fertilizer used by a farmer on his wheat crop
answer
c. construction of a new assembly-line plant by a car manufacturer
question
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
a. larger firms always have lower per-unit costs than smaller firms.
b. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.
c. diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large.
d. diseconomies of scale will be present at both small and large output rates.
a. larger firms always have lower per-unit costs than smaller firms.
b. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.
c. diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large.
d. diseconomies of scale will be present at both small and large output rates.
answer
b. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.
question
When costs that vary with the level of output are divided by the output, you have calculated
a. total changing cost.
b. total fixed cost.
c. average fixed cost.
d. average variable cost.
a. total changing cost.
b. total fixed cost.
c. average fixed cost.
d. average variable cost.
answer
d. average variable cost.
question
A downward-sloping portion of a long-run average total cost curve is the result of
a. economies of scale.
b. diseconomies of scale.
c. diminishing returns.
d. the existence of fixed resources.
a. economies of scale.
b. diseconomies of scale.
c. diminishing returns.
d. the existence of fixed resources.
answer
a. economies of scale.
question
A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?
a. $3,500
b. $5,000
c. $6,150
d. $8,500
a. $3,500
b. $5,000
c. $6,150
d. $8,500
answer
c. $6,150
question
In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be
a. $25.
b. $2,500.
c. $5,000.
d. $7,500.
a. $25.
b. $2,500.
c. $5,000.
d. $7,500.
answer
b. $2,500.
question
Which of the following would shift a firm's short-run cost curves downward?
a. an advance in technology
b. an increase in employees' wages
c. an increase in the demand for the firm's product
d. an increase in excise taxes levied on the firm's product
a. an advance in technology
b. an increase in employees' wages
c. an increase in the demand for the firm's product
d. an increase in excise taxes levied on the firm's product
answer
a. an advance in technology
question
Which of the following is the most fundamental function of government?
a. protection of individuals and their property
b. imposing progressive taxes to fund income-transfer programs
c. regulating prices and wages
d. provision of postal services and garbage collection
a. protection of individuals and their property
b. imposing progressive taxes to fund income-transfer programs
c. regulating prices and wages
d. provision of postal services and garbage collection
answer
a. protection of individuals and their property
question
Economic efficiency requires that
a. individuals produce at their maximum level.
b. only long-lasting, high-quality products be produced without regard to cost.
c. income be distributed equally among consumers.
d. all economic activity generating more benefits than costs be undertaken.
a. individuals produce at their maximum level.
b. only long-lasting, high-quality products be produced without regard to cost.
c. income be distributed equally among consumers.
d. all economic activity generating more benefits than costs be undertaken.
answer
d. all economic activity generating more benefits than costs be undertaken.
question
When production of a good generates external costs, the
a. demand curve for the good will overstate the true social benefits from consumption of the good.
b. demand curve for the good will understate the true social benefits from consumption of the good.
c. supply curve for the good will overstate the true social cost of producing the good.
d. supply curve for the good will understate the true social cost of producing the good.
a. demand curve for the good will overstate the true social benefits from consumption of the good.
b. demand curve for the good will understate the true social benefits from consumption of the good.
c. supply curve for the good will overstate the true social cost of producing the good.
d. supply curve for the good will understate the true social cost of producing the good.
answer
d. supply curve for the good will understate the true social cost of producing the good.
question
From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to
a. an output of the product that exceeds the amount consistent with ideal economic efficiency.
b. an output of the product that is less than the amount consistent with ideal economic efficiency.
c. an output of the product that equals the amount consistent with ideal economic efficiency.
d. product prices that are below the cost of production.
a. an output of the product that exceeds the amount consistent with ideal economic efficiency.
b. an output of the product that is less than the amount consistent with ideal economic efficiency.
c. an output of the product that equals the amount consistent with ideal economic efficiency.
d. product prices that are below the cost of production.
answer
b. an output of the product that is less than the amount consistent with ideal economic efficiency.
question
Competitive markets generally give consumers and producers correct incentives when
a. externalities are present in the market.
b. property rights are well-defined and enforced.
c. the good being produced and consumed is a pure public good.
d. there is a substantial lack of information on the part of either buyers or sellers.
a. externalities are present in the market.
b. property rights are well-defined and enforced.
c. the good being produced and consumed is a pure public good.
d. there is a substantial lack of information on the part of either buyers or sellers.
answer
b. property rights are well-defined and enforced.
question
Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?
a. The flu shot is cheaper than the cost of treatment when you get the flu.
b. The income of doctors increases when you get the flu shot.
c. The flu shot reduces the likelihood others will catch the flu.
d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.
a. The flu shot is cheaper than the cost of treatment when you get the flu.
b. The income of doctors increases when you get the flu shot.
c. The flu shot reduces the likelihood others will catch the flu.
d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.
answer
c. The flu shot reduces the likelihood others will catch the flu.
question
Which of the following is the best example of a public good?
a. a government-run health care system
b. the Walt Disney World amusement park
c. national defense
d. long-distance telephone service
a. a government-run health care system
b. the Walt Disney World amusement park
c. national defense
d. long-distance telephone service
answer
c. national defense
question
Markets may have difficulty providing the proper quantity of a public good because
a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
b. the good generally has a very large value to consumers relative to its cost of production.
c. the good is one that tends to benefit a large number of people.
d. the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.
a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
b. the good generally has a very large value to consumers relative to its cost of production.
c. the good is one that tends to benefit a large number of people.
d. the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.
answer
a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
question
Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?
a. The price will be too high, and the output will be too large.
b. The price will be too low, and the output will be too large.
c. The price will be too low, and the output will be too small.
d. The price will be too high, and the output will be too small.
a. The price will be too high, and the output will be too large.
b. The price will be too low, and the output will be too large.
c. The price will be too low, and the output will be too small.
d. The price will be too high, and the output will be too small.
answer
b. The price will be too low, and the output will be too large.
question
Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?
a. brand names
b. franchising
c. consumer ratings magazines
d. all of the above
a. brand names
b. franchising
c. consumer ratings magazines
d. all of the above
answer
d. all of the above
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