question
The function which shows combinations of inputs that yield the same output is called a(n)
A) isoquant curve.
B) isocost curve.
C) production function.
D) production possibilities frontier.
A) isoquant curve.
B) isocost curve.
C) production function.
D) production possibilities frontier.
answer
A
question
Which of the following production functions exhibits constant returns to scale?
A) q = KL
B) q = KL0.5
C) q = K + L
D) q = log(KL)
A) q = KL
B) q = KL0.5
C) q = K + L
D) q = log(KL)
answer
C.
question
When there are economies of scale,
A) MC > AC, so cost-output elasticity is greater than AC.
B) MC < AC, so cost-output elasticity is less than AC.
C) MC < AC, so cost-output elasticity is greater than 1.
D) MC < AC, so cost-output elasticity is less than 1.
E) long-run marginal cost is declining.
A) MC > AC, so cost-output elasticity is greater than AC.
B) MC < AC, so cost-output elasticity is less than AC.
C) MC < AC, so cost-output elasticity is greater than 1.
D) MC < AC, so cost-output elasticity is less than 1.
E) long-run marginal cost is declining.
answer
D.
question
The demand curve facing a perfectly competitive firm is
A) the same as the market demand curve.
B) downward-sloping and less flat than the market demand curve.
C) downward-sloping and more flat than the market demand curve.
D) perfectly horizontal.
E) perfectly vertical.
A) the same as the market demand curve.
B) downward-sloping and less flat than the market demand curve.
C) downward-sloping and more flat than the market demand curve.
D) perfectly horizontal.
E) perfectly vertical.
answer
D.
question
Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
answer
D.
question
Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers. II. When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
answer
B.
question
Marginal revenue, graphically, is
A) the slope of a line from the origin to a point on the total revenue curve.
B) the slope of a line from the origin to the end of the total revenue curve.
C) the slope of the total revenue curve at a given point.
D) the vertical intercept of a line tangent to the total revenue curve at a given point.
E) the horizontal intercept of a line tangent to the total revenue curve at a given point.
A) the slope of a line from the origin to a point on the total revenue curve.
B) the slope of a line from the origin to the end of the total revenue curve.
C) the slope of the total revenue curve at a given point.
D) the vertical intercept of a line tangent to the total revenue curve at a given point.
E) the horizontal intercept of a line tangent to the total revenue curve at a given point.
answer
C.
question
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
A) They must intersect, with TC cutting TR from below.
B) They must intersect, with TC cutting TR from above.
C) They must be tangent to each other.
D) They cannot be tangent to each other.
E) They must have the same slope.
A) They must intersect, with TC cutting TR from below.
B) They must intersect, with TC cutting TR from above.
C) They must be tangent to each other.
D) They cannot be tangent to each other.
E) They must have the same slope.
answer
E.
question
Which of the following policies could lead to a deadweight loss?
A) price ceilings.
B) price floors.
C) policies prohibiting human cloning.
D) all of the above
E) A and B only
A) price ceilings.
B) price floors.
C) policies prohibiting human cloning.
D) all of the above
E) A and B only
answer
D.
question
The U.S. government currently imposes a $0.54 per gallon tariff on all ethanol imported into the country. If this tariff were removed, then:
A) the domestic ethanol price falls.
B) the domestic quantity of ethanol supplied declines.
C) domestic consumer surplus increases.
D) domestic producer surplus decreases.
E) all of the above
A) the domestic ethanol price falls.
B) the domestic quantity of ethanol supplied declines.
C) domestic consumer surplus increases.
D) domestic producer surplus decreases.
E) all of the above
answer
E.
question
Suppose the long-run cost function is C = 2q2 . What is the cost-output elasticity for this case?
A) 1
B) 2
C) 1/2
D) 4
A) 1
B) 2
C) 1/2
D) 4
answer
B.
question
A farmer uses L units of labor and K units of capital to produce Q units of corn using a production function F(K,L). A production plan that uses K' = L' = 10 to produce Q' units of corn where Q' < F(10, 10) is said to be
A) technically feasible and efficient.
B) technically unfeasible and efficient.
C) technically feasible and inefficient.
D) technically unfeasible and inefficient.
A) technically feasible and efficient.
B) technically unfeasible and efficient.
C) technically feasible and inefficient.
D) technically unfeasible and inefficient.
answer
C.
question
If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,
A) the firm is earning negative profit, and will shut down rather than produce that level of output.
B) the firm is earning negative profit, but will continue to produce where MR = MC in the short run.
C) the firm is still earning positive profit, as long as variable costs are covered.
D) the firm is covering explicit, but not implicit, costs.
E) the firm can cover all of fixed costs but only a portion of variable costs.
A) the firm is earning negative profit, and will shut down rather than produce that level of output.
B) the firm is earning negative profit, but will continue to produce where MR = MC in the short run.
C) the firm is still earning positive profit, as long as variable costs are covered.
D) the firm is covering explicit, but not implicit, costs.
E) the firm can cover all of fixed costs but only a portion of variable costs.
answer
B.
question
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?
A) Firm's short-run supply curve
B) Average total cost curve
C) Average variable cost curve
D) Average fixed cost curve
A) Firm's short-run supply curve
B) Average total cost curve
C) Average variable cost curve
D) Average fixed cost curve
answer
D.
question
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C = L0.5M0.75. This production function exhibits
A) decreasing returns to scale for all output levels
B) constant returns to scale for all output levels
C) increasing returns to scale for all output levels
D) no clear pattern of returns to scale
A) decreasing returns to scale for all output levels
B) constant returns to scale for all output levels
C) increasing returns to scale for all output levels
D) no clear pattern of returns to scale
answer
C.
question
Which of the following is NOT an expression for the cost minimizing combination of inputs?
A) MRTS = MPL /MPK
B) MPL/w = MPK/r
C) MRTS = w/r
D) MPL/MPK = w/r
E) none of the above
A) MRTS = MPL /MPK
B) MPL/w = MPK/r
C) MRTS = w/r
D) MPL/MPK = w/r
E) none of the above
answer
A.
question
The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average fixed cost?
A) 500
B) 5Q
C) 5
D) 5 + (200/Q)
E) none of the above
A) 500
B) 5Q
C) 5
D) 5 + (200/Q)
E) none of the above
answer
E.
question
The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as
A) revenue exceeds producer surplus.
B) producer surplus is positive.
C) producer surplus exceeds fixed cost.
D) producer surplus exceeds variable cost.
E) profit and producer surplus are equal.
A) revenue exceeds producer surplus.
B) producer surplus is positive.
C) producer surplus exceeds fixed cost.
D) producer surplus exceeds variable cost.
E) profit and producer surplus are equal.
answer
B.
question
Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is
A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.
A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.
answer
D.
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?
A) Consumers lose area B.
B) Consumers lose area A+B.
C) Consumers lose area A but gain area B.
D) Consumers gain area A+B.
A) Consumers lose area B.
B) Consumers lose area A+B.
C) Consumers lose area A but gain area B.
D) Consumers gain area A+B.
answer
B.
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in producer surplus after this policy is adopted?
A) Producers lose area C but gain area A.
B) Producers lose area C but gain area A+B.
C) Producers gain A.
D) Producers gain area A+B+D.
A) Producers lose area C but gain area A.
B) Producers lose area C but gain area A+B.
C) Producers gain A.
D) Producers gain area A+B+D.
answer
D.
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the cost of this program to the government?
A) Government expenditures are area E+F+G.
B) Government expenditures are area B+C+D.
C) Government expenditures are area D.
D) Government expenditures are area B+C+D+E+F+G.
A) Government expenditures are area E+F+G.
B) Government expenditures are area B+C+D.
C) Government expenditures are area D.
D) Government expenditures are area B+C+D+E+F+G.
answer
D.
question
The phenomenon of scarcity stems from the fact that
a. most economies' production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and services.
c. governments restrict production of too many goods and services.
d. resources are limited.
a. most economies' production methods are not very good.
b. in most economies, wealthy people consume disproportionate quantities of goods and services.
c. governments restrict production of too many goods and services.
d. resources are limited.
answer
D.
question
Economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government.
answer
b.
question
Normative statements are
a. prescriptive, whereas positive statements are descriptive.
b. descriptive, whereas positive statements are prescriptive.
c. backward-looking, whereas positive statements are forward-looking.
d. forward-looking, whereas positive statements are backward-looking.
a. prescriptive, whereas positive statements are descriptive.
b. descriptive, whereas positive statements are prescriptive.
c. backward-looking, whereas positive statements are forward-looking.
d. forward-looking, whereas positive statements are backward-looking.
answer
a.
question
In a market economy, supply and demand are important because they
a. are direct policy tools used by government agencies to regulate the economy.
b. illustrate when an market is in equilibrium, but they are not helpful when a market is out of equilibrium.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.
a. are direct policy tools used by government agencies to regulate the economy.
b. illustrate when an market is in equilibrium, but they are not helpful when a market is out of equilibrium.
c. can be used to predict the impact on the economy of various events and policies.
d. All of the above are correct.
answer
c.
question
Which of the following is an example of a market?
a. a gas station
b. a garage sale
c. a barber shop
d. All of the above are examples of markets.
a. a gas station
b. a garage sale
c. a barber shop
d. All of the above are examples of markets.
answer
d.
question
The law of supply states that, other things equal, when the price of a good
a. falls, the supply of the good rises.
b. rises, the quantity supplied of the good rises.
c. rises, the supply of the good falls.
d. falls, the quantity supplied of the good rises.
a. falls, the supply of the good rises.
b. rises, the quantity supplied of the good rises.
c. rises, the supply of the good falls.
d. falls, the quantity supplied of the good rises.
answer
b.
question
The CPI in 1970 was 38.8 and in 1998 the CPI was 163.0. If the real value of a 1970 gallon of milk in terms of 1998 dollars is $0.70, what was the nominal price of milk in 1970?
a. $0.01
b. $0.07
c. $0.17
d. $0.77
a. $0.01
b. $0.07
c. $0.17
d. $0.77
answer
c.
question
Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?
A) Preferences are complete.
B) Preferences are transitive.
C) Consumers prefer more of a good to less.
D) All of the above are basic assumptions about consumer preferences.
A) Preferences are complete.
B) Preferences are transitive.
C) Consumers prefer more of a good to less.
D) All of the above are basic assumptions about consumer preferences.
answer
D. All of the above are basic assumptions about consumer preferences.
question
A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:
A) a budget line.
B) an isoquant.
C) an indifference curve.
D) a demand curve.
E) none of the above
A) a budget line.
B) an isoquant.
C) an indifference curve.
D) a demand curve.
E) none of the above
answer
C. an indifference curve.
question
From 1970 to 2010, the real price of eggs decreased. Which of the following would cause an unambiguous decrease in the real price of eggs?
A) A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs.
B) A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs.
C) A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs.
D) A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs.
A) A shift to the right in the supply curve for eggs and a shift to the right in the demand curve for eggs.
B) A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs.
C) A shift to the left in the supply curve for eggs and a shift to the right in the demand curve for eggs.
D) A shift to the left in the supply curve for eggs and a shift to the left in the demand curve for eggs.
answer
B. A shift to the right in the supply curve for eggs and a shift to the left in the demand curve for eggs.
question
The derivative of f(q,x) = 10/q2 + 2x with respect to x is
a. 2
b. -2/x
c. -2/x2
d. 2/x2
a. 2
b. -2/x
c. -2/x2
d. 2/x2
answer
a.
question
The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:
A) good A is used to produce good B.
B) good B is used to produce good A.
C) goods A and B are substitutes.
D) goods A and B are complements.
A) good A is used to produce good B.
B) good B is used to produce good A.
C) goods A and B are substitutes.
D) goods A and B are complements.
answer
D. goods A and B are complements.
question
From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?
A) A shift to the right in the supply curve for college education and a shift to the left in the demand curve for college education.
B) A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education.
C) A shift to the left in the supply curve for college education and a shift to the left in the demand curve for college education.
D) none of the above
A) A shift to the right in the supply curve for college education and a shift to the left in the demand curve for college education.
B) A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education.
C) A shift to the left in the supply curve for college education and a shift to the left in the demand curve for college education.
D) none of the above
answer
B. A shift to the left in the supply curve for college...
question
The income elasticity of demand is the
A) absolute change in quantity demanded resulting from a one unit increase in income.
B) percent change in quantity demanded resulting from the absolute increase in income.
C) percent change in quantity demanded resulting from a one percent increase in income.
D) percent change in income resulting from a one percent increase in quantity demanded.
A) absolute change in quantity demanded resulting from a one unit increase in income.
B) percent change in quantity demanded resulting from the absolute increase in income.
C) percent change in quantity demanded resulting from a one percent increase in income.
D) percent change in income resulting from a one percent increase in quantity demanded.
answer
C. ...resulting from a one percent increase in income.
question
The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.?
A) +3.2%
B) -3.2%
C) +32.0%
D) +0.32%
A) +3.2%
B) -3.2%
C) +32.0%
D) +0.32%
answer
A. +3.2%
question
The demand for packs of Pokemon cards is given by the equation QD = 500,000 - 45,000P. At a price of $2.50 per pack, what is the quantity demanded? At $5.00 per pack, what is the price elasticity of demand?
A) -0.0515
B) -0.818
C) -1.242
D) -2.743
A) -0.0515
B) -0.818
C) -1.242
D) -2.743
answer
B. -0.818
question
The price elasticity of demand for a demand curve that has a zero slope is
A) zero.
B) one.
C) negative but approaches zero as consumption increases.
D) infinity.
A) zero.
B) one.
C) negative but approaches zero as consumption increases.
D) infinity.
answer
D. infinity
question
Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian would have indifference curves that are:
A) vertical lines.
B) horizontal lines.
C) diagonal straight lines.
D) right angles.
A) vertical lines.
B) horizontal lines.
C) diagonal straight lines.
D) right angles.
answer
B. Horizontal lines.
question
If the quantity of good A (QA) is plotted along the horizontal axis, the quantity of good B (QB) is plotted along the vertical axis, the price of good A is PA, the price of good B is PB and the consumer's income is I, then the slope of the consumer's budget constraint is ________.
A) -QA/QB
B) -QB/QA
C) -PA/PB
D) -PB/PA
A) -QA/QB
B) -QB/QA
C) -PA/PB
D) -PB/PA
answer
C. -PA/PB
question
The endpoints (horizontal and vertical intercepts) of the budget line:
A) measure its slope.
B) measure the rate at which one good can be substituted for another.
C) measure the rate at which a consumer is willing to trade one good for another.
D) represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
A) measure its slope.
B) measure the rate at which one good can be substituted for another.
C) measure the rate at which a consumer is willing to trade one good for another.
D) represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
answer
D. represent the quantity of each good that could be
question
An individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?
A) MRSxy is at a maximum.
B) Px/Py = money income.
C) MRSxy = money income.
D) MRSxy = Px/Py.
A) MRSxy is at a maximum.
B) Px/Py = money income.
C) MRSxy = money income.
D) MRSxy = Px/Py.
answer
D. MRSxy = Px/Py.
question
Which of the following is true regarding income along a price-consumption curve?
A) Income is increasing.
B) Income is decreasing.
C) Income is constant.
D) The level of income depends on the level of utility.
A) Income is increasing.
B) Income is decreasing.
C) Income is constant.
D) The level of income depends on the level of utility.
answer
C. Income is constant.
question
The income-consumption curve for Stephen between Qa and Qb is given as: Qa = Qb. His budget constraint is given as: 120 = Qa + 4Qb How much Qa will Stephen consume to maximize utility?
A) 0
B) 24
C) 30
D) 60
E) More information is needed to answer this question.
A) 0
B) 24
C) 30
D) 60
E) More information is needed to answer this question.
answer
B. 24
question
Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.
A) more, more
B) more, less
C) less, more
D) less, less
A) more, more
B) more, less
C) less, more
D) less, less
answer
D. less, less
question
The demand curve for tickets to the TWENTY ØNE PILØTS concert is given as follows: Q = 200 - 0.1P At a price of $30, what is the consumer surplus from concert tickets?
A) $0
B) $20
C) $2,000
D) $1,970
E) $194,045
A) $0
B) $20
C) $2,000
D) $1,970
E) $194,045
answer
E. $194,045
question
Stephanie and Erika decide to go into business together as economic consultants. Stephanie believes they have a 50-50 chance of earning $200,000 a year, and that if they don't, they'll earn $0. Erika believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000. The expected value of undertaking,
A) according to Erika, is $75,000.
B) according to Erika, is $100,000.
C) according to Erika, is $110,000.
D) according to Stephanie, is $200,000.
E) according to Stephanie, is $100,000.
A) according to Erika, is $75,000.
B) according to Erika, is $100,000.
C) according to Erika, is $110,000.
D) according to Stephanie, is $200,000.
E) according to Stephanie, is $100,000.
answer
E. according to Stephanie, is $100,000.
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