question
A feature of a perfect competition is
answer
Standardized products
question
A firm that seeks to maximize its revenue is most likely to adhere to which of the following
answer
MR=0
question
Demand facing an individual, perfectly competitive firm is
answer
Perfectly elastic at the price at the price determined by the market forces
question
For a demand curve that is horizontal, the marginal revenue curve
answer
will be the same as the demand curve
question
If an industry could be organized either perfectly competitive or monopoly, a monopoly would
answer
produce less input
produce where p>MC
Charge higher prices
produce where p>MC
Charge higher prices
question
In long-run equilibrium a perfectly competitive firm will operate where the price is
answer
equal to MR, MC, and minimum to ATC
question
In perfect competition, if firms enter the market in the long run
answer
total supply will increase causing market price to decrease
question
In the short run a firm should shutdown if it cannot
answer
Cover its variable cost
question
When a firm has the power to establish its price
answer
P>MR
question
When MR=MC
answer
Total profit is maximized
question
Which is a required characteristic of of a perfectly competitive industry
There are few firms so that none can influence the market price
Products are highly differentiated
Barriers to entry are high
There are few firms so that none can influence the market price
Products are highly differentiated
Barriers to entry are high
answer
None of the above
question
which of the following characteristics is most important in differentiating between perfect competition and all other types of markets
answer
Whether or not firms are price takers
question
To an economist, total costs include
A) explicit, but not implicit costs.
B) implicit, but not explicit costs.
C) explicit and implicit costs.
D) neither explicit nor implicit costs.
A) explicit, but not implicit costs.
B) implicit, but not explicit costs.
C) explicit and implicit costs.
D) neither explicit nor implicit costs.
answer
C) explicit and implicit costs.
question
Economists consider which of the following costs to be irrelevant to a short-run business decision?
A) opportunity cost
B) out-of-pocket cost
C) historical cost
D) replacement cost
A) opportunity cost
B) out-of-pocket cost
C) historical cost
D) replacement cost
answer
C) historical cost
question
Which of the following is a relevant cost?
A) replacement cost
B) sunk cost
C) historical cost
D) fixed cost
E) All of the above are relevant.
A) replacement cost
B) sunk cost
C) historical cost
D) fixed cost
E) All of the above are relevant.
answer
A) replacement cost
question
Which of the following distinctions helps to explain the difference between relevant and irrelevant cost?
A) accounting cost vs. direct cost
B) historical cost vs. replacement cost
C) sunk cost vs. fixed cost
D) variable cost vs. incremental cost
A) accounting cost vs. direct cost
B) historical cost vs. replacement cost
C) sunk cost vs. fixed cost
D) variable cost vs. incremental cost
answer
B) historical cost vs. replacement cost
question
Which of the following distinctions does not help to explain the difference between relevant and irrelevant cost?
A) historical vs. replacement cost
B) sunk vs. incremental cost
C) variable vs. fixed cost
D) out-of-pocket vs. opportunity cost
E) All help to explain the difference.
A) historical vs. replacement cost
B) sunk vs. incremental cost
C) variable vs. fixed cost
D) out-of-pocket vs. opportunity cost
E) All help to explain the difference.
answer
D) out-of-pocket vs. opportunity cost
question
Costs of production that change with the rate of output are
A) sunk costs.
B) opportunity costs.
C) fixed costs.
D) variable costs.
A) sunk costs.
B) opportunity costs.
C) fixed costs.
D) variable costs.
answer
D) variable costs.
question
Changes in the short-run total costs result from changes in only
A) variable costs.
B) fixed costs.
C) zero.
D) total fixed costs.
A) variable costs.
B) fixed costs.
C) zero.
D) total fixed costs.
answer
A) variable costs.
question
Economic profit equals accounting profit minus
A) explicit costs.
B) implicit costs.
C) fixed costs.
D) variable costs.
A) explicit costs.
B) implicit costs.
C) fixed costs.
D) variable costs.
answer
B) implicit costs.
question
Which of the following is most likely a fixed cost?
A) expenditures for raw materials
B) wages for unskilled labor
C) fuel cost
D) property taxes
A) expenditures for raw materials
B) wages for unskilled labor
C) fuel cost
D) property taxes
answer
D) property taxes
question
Average fixed cost
A) does not change as total output increases or decreases.
B) varies directly with total output.
C) falls continuously as total output expands.
D) rises as the output is expanded.
A) does not change as total output increases or decreases.
B) varies directly with total output.
C) falls continuously as total output expands.
D) rises as the output is expanded.
answer
C) falls continuously as total output expands.
question
Average fixed cost is
A) AC minus AVC.
B) TC divided by Q.
C) AVC minus MC.
D) TC minus TVC.
A) AC minus AVC.
B) TC divided by Q.
C) AVC minus MC.
D) TC minus TVC.
answer
A) AC minus AVC.
question
Which of the following cost relationships is not true?
A) AFC = AC - MC
B) TVC = TC - TFC
C) The change in TVC/the change in Q = MC
D) The change in TC/ the change in Q = MC
A) AFC = AC - MC
B) TVC = TC - TFC
C) The change in TVC/the change in Q = MC
D) The change in TC/ the change in Q = MC
answer
A) AFC = AC - MC
question
When a firm increased its output by one unit, its AFC decreased. This is an indication that
A) the law of diminishing returns has taken effect.
B) MC < AFC.
C) AVC < AFC.
D) the firm is spreading out its total fixed cost.
A) the law of diminishing returns has taken effect.
B) MC < AFC.
C) AVC < AFC.
D) the firm is spreading out its total fixed cost.
answer
D) the firm is spreading out its total fixed cost.
question
The distinction between sunk and incremental costs is most helpful in answering which question?
A) How many more people should be added to the production process?
B) What is the correct price to charge?
C) Should we begin to build a new factory?
D) Should we continue developing a new software application that we began last year?
A) How many more people should be added to the production process?
B) What is the correct price to charge?
C) Should we begin to build a new factory?
D) Should we continue developing a new software application that we began last year?
answer
D) Should we continue developing a new software application that we began last year?
question
Which of the following relationships is correct?
A) When marginal product starts to decrease, marginal cost starts to decrease.
B) When marginal cost starts to increase, average cost starts to increase.
C) When marginal cost starts to increase, average variable cost starts to increase.
D) When marginal product starts to decrease, marginal cost starts to increase.
A) When marginal product starts to decrease, marginal cost starts to decrease.
B) When marginal cost starts to increase, average cost starts to increase.
C) When marginal cost starts to increase, average variable cost starts to increase.
D) When marginal product starts to decrease, marginal cost starts to increase.
answer
D) When marginal product starts to decrease, marginal cost starts to increase.
question
The relationship between MC and AC can best be described as
A) when AC increases, MC starts to increase.
B) when MC increases, AC starts to increase.
C) when MC decreases, AC decreases.
D) when MC exceeds AC, AC increases.
A) when AC increases, MC starts to increase.
B) when MC increases, AC starts to increase.
C) when MC decreases, AC decreases.
D) when MC exceeds AC, AC increases.
answer
D) when MC exceeds AC, AC increases.
question
The law of diminishing returns begins first to affect a firm's short-run cost structure when
A) average variable cost begins to increase.
B) marginal cost begins to increase.
C) average cost begins to increase.
D) average fixed cost begins to decrease.
A) average variable cost begins to increase.
B) marginal cost begins to increase.
C) average cost begins to increase.
D) average fixed cost begins to decrease.
answer
B) marginal cost begins to increase.
question
When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is
A) $5.
B) between $45 and $50.
C) greater than $50.
D) Cannot be determined from the above information
A) $5.
B) between $45 and $50.
C) greater than $50.
D) Cannot be determined from the above information
answer
C) greater than $50.
question
When a firm's MC curve shifts to the right, it implies that
A) new firms are entering the market.
B) labor productivity is decreasing.
C) labor productivity is increasing.
D) the firm's overhead costs are decreasing.
A) new firms are entering the market.
B) labor productivity is decreasing.
C) labor productivity is increasing.
D) the firm's overhead costs are decreasing.
answer
C) labor productivity is increasing.
question
MC increases because
A) MC naturally increases as the firm nears capacity.
B) labor is paid overtime wages when volume increases.
C) in the short run, MC always increases.
D) the law of diminishing returns takes effect.
A) MC naturally increases as the firm nears capacity.
B) labor is paid overtime wages when volume increases.
C) in the short run, MC always increases.
D) the law of diminishing returns takes effect.
answer
D) the law of diminishing returns takes effect.
question
The marginal cost will intersect the average variable cost curve
A) when the average variable cost curve is rising.
B) where average variable cost curve equals price.
C) at the minimum point of the average variable cost curve.
D) The two will never intersect.
A) when the average variable cost curve is rising.
B) where average variable cost curve equals price.
C) at the minimum point of the average variable cost curve.
D) The two will never intersect.
answer
C) at the minimum point of the average variable cost curve.
question
Which of the following cost functions will exhibit both decreasing and increasing marginal costs?
A) a cubic cost function
B) a quadratic cost function
C) a linear cost function
D) All of the above
A) a cubic cost function
B) a quadratic cost function
C) a linear cost function
D) All of the above
answer
A) a cubic cost function
question
Which of the following statements best represents a difference between short-run and long-run cost?
A) Less than one year is considered the short run; more than one year the long run.
B) There are no fixed costs in the long run.
C) In the short-run labor must always be considered the variable input and capital the fixed input.
D) All of the above are true.
A) Less than one year is considered the short run; more than one year the long run.
B) There are no fixed costs in the long run.
C) In the short-run labor must always be considered the variable input and capital the fixed input.
D) All of the above are true.
answer
B) There are no fixed costs in the long run.
question
When a firm increased its output by one unit, its AC decreased. This implies that
A) MC < AC.
B) MC = AC.
C) MC < AFC.
D) the law of diminishing returns has not yet taken effect.
A) MC < AC.
B) MC = AC.
C) MC < AFC.
D) the law of diminishing returns has not yet taken effect.
answer
A) MC < AC.
question
The main factor that explains the difference between accounting cost and economic cost is
A) opportunity cost.
B) fixed cost.
C) variable cost.
D) All of the above help to explain the difference.
A) opportunity cost.
B) fixed cost.
C) variable cost.
D) All of the above help to explain the difference.
answer
A) opportunity cost.
question
When a firm experiences increasing returns to scale
A) its AFC will decrease.
B) its AFC will increase.
C) its AC will increase.
D) its AC will decrease.
A) its AFC will decrease.
B) its AFC will increase.
C) its AC will increase.
D) its AC will decrease.
answer
D) its AC will decrease.
question
If a firm's rent increases, it will affect its cost structure in which of the following ways?
A) AVC will increase.
B) MC will increase.
C) TFC will increase.
D) All of the above will increase.
A) AVC will increase.
B) MC will increase.
C) TFC will increase.
D) All of the above will increase.
answer
C) TFC will increase.
question
Which of the following relationships implies that a firm's short-run cost function is linear?
A) MC = AC
B) MC = AVC
C) AC = AFC + AVC
D) MC > AC
A) MC = AC
B) MC = AVC
C) AC = AFC + AVC
D) MC > AC
answer
B) MC = AVC
question
The learning curve
A) is really no different from a marginal cost curve.
B) calculates average cost at a particular point in time.
C) shows the decrease in unit cost as more of the same product is produced over time.
D) None of the above
A) is really no different from a marginal cost curve.
B) calculates average cost at a particular point in time.
C) shows the decrease in unit cost as more of the same product is produced over time.
D) None of the above
answer
C) shows the decrease in unit cost as more of the same product is produced over time.
question
The learning curve indicates that
A) economies of scale are taking effect.
B) repetition of various production tasks cause unit costs to decrease.
C) workers must learn new skills in order to improve.
D) it takes time to learn a new skill.
A) economies of scale are taking effect.
B) repetition of various production tasks cause unit costs to decrease.
C) workers must learn new skills in order to improve.
D) it takes time to learn a new skill.
answer
B) repetition of various production tasks cause unit costs to decrease.
question
Which level indicates the point of maximum economic efficiency?
A) lowest point on AC curve
B) lowest point on AVC curve
C) lowest point on MC curve
D) None of the above
A) lowest point on AC curve
B) lowest point on AVC curve
C) lowest point on MC curve
D) None of the above
answer
A) lowest point on AC curve
question
Which of the following actions has the best potential for experiencing economies of scope?
A) producing a product that has appeal to a wider segment of the market
B) producing computers and software
C) producing spaghetti and soft drinks
D) producing cars and trucks
A) producing a product that has appeal to a wider segment of the market
B) producing computers and software
C) producing spaghetti and soft drinks
D) producing cars and trucks
answer
D) producing cars and trucks
question
If total cost equals $2,000 and quantity produced is 100 units, then
A) fixed cost is $200 and average variable cost is $18.
B) fixed cost is $600 and average variable cost is $14.
C) fixed cost is $500 and marginal cost is $15.
D) Either A or B can be correct.
A) fixed cost is $200 and average variable cost is $18.
B) fixed cost is $600 and average variable cost is $14.
C) fixed cost is $500 and marginal cost is $15.
D) Either A or B can be correct.
answer
D) Either A or B can be correct.
question
A short-run total cost function, TC = 100 + 32Q - 4Q2 + 0.4Q3, indicates the existence of
A) a linear total cost curve.
B) a constant average variable cost curve.
C) a U-shaped average variable cost curve.
D) a constant marginal cost curve.
A) a linear total cost curve.
B) a constant average variable cost curve.
C) a U-shaped average variable cost curve.
D) a constant marginal cost curve.
answer
C) a U-shaped average variable cost curve.
question
The results of many empirical studies of short-run cost functions have shown that total costs conform to
A) a quadratic total cost function.
B) a power cost function.
C) a linear cost function.
D) a cubic cost function.
A) a quadratic total cost function.
B) a power cost function.
C) a linear cost function.
D) a cubic cost function.
answer
C) a linear cost function.
question
Among the problems encountered when time series analysis is used to estimate cost functions is
A) that technological changes may have occurred.
B) that accounting changes may have occurred during the period analyzed.
C) that some costs are recorded on the books of account at a time other than when they are incurred.
D) All of the above
A) that technological changes may have occurred.
B) that accounting changes may have occurred during the period analyzed.
C) that some costs are recorded on the books of account at a time other than when they are incurred.
D) All of the above
answer
D) All of the above
question
The method of estimating long-run costs in which knowledgeable professionals familiar with production facilities and processes calculate optimal combination of inputs to produce given quantities and then estimate costs is known as
A) engineering cost estimating.
B) the survivorship method.
C) regression analysis.
D) None of the above
A) engineering cost estimating.
B) the survivorship method.
C) regression analysis.
D) None of the above
answer
A) engineering cost estimating.
question
When the survivorship method of cost estimating is used, an increase, over time, in the proportion of industry product produced by medium size firms indicates the existence of
A) continuing economies of scale.
B) continuing diseconomies of scale.
C) a U-shaped long-run average cost curve.
D) large technological changes.
A) continuing economies of scale.
B) continuing diseconomies of scale.
C) a U-shaped long-run average cost curve.
D) large technological changes.
answer
C) a U-shaped long-run average cost curve.
question
The major advantage of using cross-sectional analysis for long-run costs studies includes
A) the inclusion in the sample of different plants of different sizes.
B) the avoidance of having to adjust for inflationary trends.
C) the avoidance of having to account for interregional cost differences.
D) All of the above
E) A and B above
A) the inclusion in the sample of different plants of different sizes.
B) the avoidance of having to adjust for inflationary trends.
C) the avoidance of having to account for interregional cost differences.
D) All of the above
E) A and B above
answer
E) A and B above
question
In the long run
A) fixed costs tend to be greater than variable costs.
B) variable costs tend to be greater than fixed costs.
C) all costs are fixed costs.
D) all costs are variable costs.
A) fixed costs tend to be greater than variable costs.
B) variable costs tend to be greater than fixed costs.
C) all costs are fixed costs.
D) all costs are variable costs.
answer
D) all costs are variable costs.
question
Assuming the existence of economies of scale, if a firm finds that it can reduce its unit cost by decreasing its scale of production, it means that
A) it has too much production capacity relative to its demand.
B) it should try to produce less.
C) the law of diminishing returns has not taken effect.
D) it has too much fixed overhead relative to its variable cost.
A) it has too much production capacity relative to its demand.
B) it should try to produce less.
C) the law of diminishing returns has not taken effect.
D) it has too much fixed overhead relative to its variable cost.
answer
A) it has too much production capacity relative to its demand.
question
As a firm attempts to increase its production, its long-run average costs eventually rise because of
A) the law of diminishing returns.
B) diseconomies of scale.
C) fixed capital.
D) insufficient demand.
A) the law of diminishing returns.
B) diseconomies of scale.
C) fixed capital.
D) insufficient demand.
answer
B) diseconomies of scale.
question
Economies of scale are created by greater efficiency of capital and by
A) longer chains of command in management.
B) better wages for labor.
C) smaller plant sizes.
D) increased specialization of labor.
A) longer chains of command in management.
B) better wages for labor.
C) smaller plant sizes.
D) increased specialization of labor.
answer
D) increased specialization of labor.
question
Economies of scale are indicated by
A) declining long-run AVC.
B) declining long-run AFC.
C) declining long-run AC.
D) declining long-run TC.
A) declining long-run AVC.
B) declining long-run AFC.
C) declining long-run AC.
D) declining long-run TC.
answer
C) declining long-run AC.
question
Which of the following is a reason for economies of scale?
A) Fixed costs are spread out as volume increases.
B) The law of diminishing returns does not take effect.
C) Input productivity increases as a result of greater specialization.
D) There is greater savings in transportation costs.
A) Fixed costs are spread out as volume increases.
B) The law of diminishing returns does not take effect.
C) Input productivity increases as a result of greater specialization.
D) There is greater savings in transportation costs.
answer
C) Input productivity increases as a result of greater specialization.
question
Diseconomies of scale can be caused by
A) the law of diminishing returns.
B) bureaucratic inefficiencies.
C) increasing advertising and promotional costs.
D) All of the above
A) the law of diminishing returns.
B) bureaucratic inefficiencies.
C) increasing advertising and promotional costs.
D) All of the above
answer
B) bureaucratic inefficiencies.
question
Which of the following is the best example of economies of scope?
A) Coca-Cola expands its global operations to sub-Sahara Africa.
B) Alcohol for car fuel is produced from corn.
C) Amazon.com decides to rent out its Web site to independent e-commerce companies.
D) A company reduces its cost by getting bigger discounts for bulk purchases.
A) Coca-Cola expands its global operations to sub-Sahara Africa.
B) Alcohol for car fuel is produced from corn.
C) Amazon.com decides to rent out its Web site to independent e-commerce companies.
D) A company reduces its cost by getting bigger discounts for bulk purchases.
answer
C) Amazon.com decides to rent out its Web site to independent e-commerce companies.
question
Short-run cost functions are estimated using
A) time-series regression analysis.
B) cross-sectional regression analysis.
C) nominal cost data.
D) present value cost data.
A) time-series regression analysis.
B) cross-sectional regression analysis.
C) nominal cost data.
D) present value cost data.
answer
A) time-series regression analysis.
question
In estimating short-run cost functions, one must adjust for
A) price level changes.
B) accounting procedure changes.
C) product heterogeneity.
D) All of the above
A) price level changes.
B) accounting procedure changes.
C) product heterogeneity.
D) All of the above
answer
D) All of the above
question
Long-run cost functions are estimated using
A) time-series regression analysis.
B) cross-sectional regression analysis.
C) cost accounting data.
D) None of the above
A) time-series regression analysis.
B) cross-sectional regression analysis.
C) cost accounting data.
D) None of the above
answer
B) cross-sectional regression analysis.
question
Law of Diminishing Marginal Utility
answer
As people consume more of a good, eventually marginal utility falls.
question
Marginal Utility
answer
"The change" in total utility that results from consuming one more unit of a good.
question
Indifference Curve
answer
All combinations of two goods that show same level of utility.
question
Suppose that MUx/Px exceeds MUy/Py. To maximize his utility the consumer should:
answer
Buy more of X and less of Y
question
List the characteristics of indifference curves:
answer
Negative Slope
Convex
Are everywhere dense
Ind. curves further from the origin have higher utility than those close to the origin
Can't intercept other indifference curves
Convex
Are everywhere dense
Ind. curves further from the origin have higher utility than those close to the origin
Can't intercept other indifference curves
question
The demand for a product is likely to be inelastic
answer
If it has no substitutes
question
The elasticity of demand indicates
answer
Consumer responsiveness to price change
question
In which of the following instances will total revenue decline?
answer
Price falls and demand is inelastic
question
Which of the following is not true for a straight line downward sloping demand curve?
answer
The elasticity is equal to one at the price intercept
As you move down along the curve, the elasticity falls and then rises
All expenditures remain constant as price falls and quantity rises
The elasticity is equal to zero at the midpoint
As you move down along the curve, the elasticity falls and then rises
All expenditures remain constant as price falls and quantity rises
The elasticity is equal to zero at the midpoint
question
If the elasticity of demand for a particular good is 0.7, we would say that the demand for that good is:
answer
Inelastic
question
Total expenditures on a product will increase when:
answer
The elasticity of demand is .4 and the price increases
question
If you could choose the price of basketball tickets and you wanted to maximize total revenues, which price would you charge?
answer
The price at which the elasticity of demand equals one.
question
If supply is inelastic, then:
answer
The percent change in price is greater than the percent change in quantity supplied
question
One determinant of elasticity of supply of a product
answer
Is the elasticity of supply of inputs used to produce that product.
question
In the short run, the firm
answer
Increases output by adding larger quantities of variable inputs to some fixed inputs
question
As a firm adds more variable inputs to fixed inputs
answer
It experiences increasing and then diminishing returns
question
Diminishing returns refers to the decrease in
answer
Marginal product that results from increases in plant size
question
Marginal cost
answer
Is inversely related to marginal product
question
Which of the following represents the relation between marginal cost and average total cost?
answer
If MC is greater than ATC, the ATC is rising
question
The vertical distance between the ATC curve and the AVC curve
answer
Is equal to AFC
question
The demand for a product is likely to be more elastic
answer
In the long run but less elastic in the short run
question
In which of the following instances will total revenue increase?
answer
Price falls and demand is elastic
question
In which of the following instances will total receipts decline?
answer
Price rises and demand is elastic
question
If you could choose the price of OPEC oil and you wanted to maximize total revenues, which price would you charge?
answer
The price at which there is unitary elasticity of demand
question
Total expenditures of a product will decrease when
answer
The elasticity is 2.4 and the market price increases
question
If price rises from $80 to $90 and quantity demanded falls from 250 to 200, then
answer
Elasticity is greater than one. 50/200 / 1/8 = 2
question
When Detroit's bus fare increased from 40 to 60 cents, the number of riders decreased from 800 per week. Over the price range given, the demand curve for bus service in Detroit is
answer
Inelastic 150/800 / 20/40 = 45
question
The major determinant of the elasticity of demand for a product or service is
answer
The price of complementary goods
question
The demand for a product is likely to be inelastic
answer
If there are no good substitutes available
question
If a natural monopoly decreases the quantity of output it produces, then:
a. its average cost will decrease.
b. its average cost will increase.
c. it will have to decrease its price.
d. its profit will increase.
a. its average cost will decrease.
b. its average cost will increase.
c. it will have to decrease its price.
d. its profit will increase.
answer
b. its average cost will increase.
question
Consider an industry with two firms producing similar products. Each firm's total cost (in
dollars) is given below.
Acme Manufacturing:TC= 100 + 3Q.
Generic Industries:TC= 500 + 3Q.
Suppose that Acme and Generic face the same demand curve. If each firm produces its
profit-maximizing level of output and earns a positive economic profit, then which of the
following statements is true?
a. Acme will produce more output than Generic.
b. Generic will produce more output than Acme.
c. Acme and Generic will produce the same quantity and will have the same profits.
d. Acme and Generic will produce the same quantity, but Acme will have higher
profits.
dollars) is given below.
Acme Manufacturing:TC= 100 + 3Q.
Generic Industries:TC= 500 + 3Q.
Suppose that Acme and Generic face the same demand curve. If each firm produces its
profit-maximizing level of output and earns a positive economic profit, then which of the
following statements is true?
a. Acme will produce more output than Generic.
b. Generic will produce more output than Acme.
c. Acme and Generic will produce the same quantity and will have the same profits.
d. Acme and Generic will produce the same quantity, but Acme will have higher
profits.
answer
b. Generic will produce more output than Acme.
question
Airlines that charge higher prices for seats in the first class cabin are:
a. not price discriminating because the product is not the same.
b. price discriminating because all passengers on the plane are traveling the same
route.
c. perfect price discriminators.
d. using the hurdle method of price discrimination.
a. not price discriminating because the product is not the same.
b. price discriminating because all passengers on the plane are traveling the same
route.
c. perfect price discriminators.
d. using the hurdle method of price discrimination.
answer
b. price discriminating because all passengers on the plane are traveling the same
route.
route.
question
A perfectly price discriminating monopolist charges each buyer:
a. exactly his or her marginal cost.
b. more than his or her reservation price.
c. exactly his or her reservation price.
d. the perfectly competitive equilibrium price.
a. exactly his or her marginal cost.
b. more than his or her reservation price.
c. exactly his or her reservation price.
d. the perfectly competitive equilibrium price.
answer
c. exactly his or her reservation price.
question
A natural monopoly is a monopoly that arises from:
a. having an exclusive right to operate in a national park.
b. having exclusive control over the natural resources used to produce a good.
c. a firm's natural desire to maximize its profit.
d. economies of scale.
a. having an exclusive right to operate in a national park.
b. having exclusive control over the natural resources used to produce a good.
c. a firm's natural desire to maximize its profit.
d. economies of scale.
answer
d. economies of scale.
question
Perfect competition is socially efficient and monopoly is not because under perfect
competition price is ______ while under monopoly price is ______.
a. equal to MC; greater than MC
b. less than MR; equal toMR
c. equal to MR; less than MR
d. equal to MC; less than MC
competition price is ______ while under monopoly price is ______.
a. equal to MC; greater than MC
b. less than MR; equal toMR
c. equal to MR; less than MR
d. equal to MC; less than MC
answer
a. equal to MC; greater than MC
question
An imperfectly competitive firm faces a demand curve that is ______, while a perfectly
competitive firm faces a demand curve that is ______.
a. perfectly inelastic; downward sloping
b. horizontal; downward sloping
c. perfectly inelastic; perfectly elastic
d. downward sloping; perfectly elastic
competitive firm faces a demand curve that is ______.
a. perfectly inelastic; downward sloping
b. horizontal; downward sloping
c. perfectly inelastic; perfectly elastic
d. downward sloping; perfectly elastic
answer
d. downward sloping; perfectly elastic
question
The primary objective of an imperfectly competitive firm is to:
a. charge the highest possible price.
b. maximize total revenue.
c. minimize total cost.
d. maximize profit.
a. charge the highest possible price.
b. maximize total revenue.
c. minimize total cost.
d. maximize profit.
answer
d. maximize profit.
question
Once a firm has determined the quantity of output it wishes to sell, the maximum price it
can charge for each unit is determined by:
a. the average cost of making the product.
b. the demand curve facing the firm.
c. the marginal cost of making the product.
d. the firm's marginal revenue curve.
can charge for each unit is determined by:
a. the average cost of making the product.
b. the demand curve facing the firm.
c. the marginal cost of making the product.
d. the firm's marginal revenue curve.
answer
b. the demand curve facing the firm.
question
The reason economists consider monopoly to be socially undesirable is that monopolists:
a. earn too much economic profit.
b. can charge any price they want.
c. exploit the inelastic nature of demand.
d. produce less than the socially optimal level of output.
a. earn too much economic profit.
b. can charge any price they want.
c. exploit the inelastic nature of demand.
d. produce less than the socially optimal level of output.
answer
d. produce less than the socially optimal level of output.
question
In exchange for a share of the revenues earned on campus, State U has granted CheapFizz
the exclusive right to sell soft drinks in the student union and in vending machines on
campus. Prior to the deal, three soft drink companies sold beverages on campus;
now no other soft drink company is allowed to sell its products on campus. The beneficiaries of
this deal is/are _______.
a. the students at State U
b. State U
c. State U and CheapFizz
d. CheapFizz
the exclusive right to sell soft drinks in the student union and in vending machines on
campus. Prior to the deal, three soft drink companies sold beverages on campus;
now no other soft drink company is allowed to sell its products on campus. The beneficiaries of
this deal is/are _______.
a. the students at State U
b. State U
c. State U and CheapFizz
d. CheapFizz
answer
d. CheapFizz
question
Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total
cost (in dollars) is given by the equation TC= 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.
a. $3
b. $10
c. $3.10
d. $13
cost (in dollars) is given by the equation TC= 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.
a. $3
b. $10
c. $3.10
d. $13
answer
d. $13
question
Suppose a perfectly competitive firm and a monopolist are both charging $5 for their
respective products. From this, one can infer that:
a. the marginal benefit from selling an additional unit of output is $5 for both firms.
b. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.
c. the marginal benefit from selling an additional unit of output is less than $5 for both firms.
d. the competitive firm is charging too much, and the monopolist is charging too little.
respective products. From this, one can infer that:
a. the marginal benefit from selling an additional unit of output is $5 for both firms.
b. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.
c. the marginal benefit from selling an additional unit of output is less than $5 for both firms.
d. the competitive firm is charging too much, and the monopolist is charging too little.
answer
b. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.
question
Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total
cost (in dollars) is given by the equation
TC= 300 + 10Q, where Q represents the number
of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______.
a. 300; 10
b. 300/Q; 30
c. 300; 10Q
d. 300/Q; 10
cost (in dollars) is given by the equation
TC= 300 + 10Q, where Q represents the number
of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______.
a. 300; 10
b. 300/Q; 30
c. 300; 10Q
d. 300/Q; 10
answer
a. 300; 10
question
A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.
a. increasing
b. low
c. high
d. decreasing
a. increasing
b. low
c. high
d. decreasing
answer
b. low
question
One problem with antitrust laws is that they:
a. are too recent to be understood by most lawyers.
b. encourage too many mergers.
c. blunt firms' incentives to cut costs.
d. may prevent companies from achieving economies of scale.
a. are too recent to be understood by most lawyers.
b. encourage too many mergers.
c. blunt firms' incentives to cut costs.
d. may prevent companies from achieving economies of scale.
answer
d. may prevent companies from achieving economies of scale.
question
Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ______ and its profit will ______.
a. fall; rise
b. fall; fall
c. rise; fall
d. rise; rise
a. fall; rise
b. fall; fall
c. rise; fall
d. rise; rise
answer
d. rise; rise
question
Given the demand curve it faces, if an imperfectly competitive firm wants to sell another
unit of output, it must:
a. increase its advertising.
b. increase the value of its product.
c. lower its price.
d. lower its quality.
unit of output, it must:
a. increase its advertising.
b. increase the value of its product.
c. lower its price.
d. lower its quality.
answer
c. lower its price.
question
Given the total cost function
TC= 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______.
a. $2; $2
b. $4; $2
c. $4; $2,000
d. $4,000; $2,000
TC= 2,000 + 2Q, when output is 1,000 units average total cost is ______ and total fixed cost is ______.
a. $2; $2
b. $4; $2
c. $4; $2,000
d. $4,000; $2,000
answer
c. $4; $2,000
question
The primary objective of most private firms is to:
A. maximize revenue.
B. maximize profit.
C. minimize cost.
D. maximize output.
A. maximize revenue.
B. maximize profit.
C. minimize cost.
D. maximize output.
answer
maximize profit.
question
Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did
not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's
career change?
A. Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank.
B. Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening.
C. Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening.
D. Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.
not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's
career change?
A. Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank.
B. Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening.
C. Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening.
D. Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.
answer
Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank.
question
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run
lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly
competitive if:
A. all of the kids advertise heavily.
B. each stand tries to get more customers by offering different varieties of lemonade and snacks.
C. each lemonade stand sells the same kind of lemonade.
D. some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell
from makeshift tables.
lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly
competitive if:
A. all of the kids advertise heavily.
B. each stand tries to get more customers by offering different varieties of lemonade and snacks.
C. each lemonade stand sells the same kind of lemonade.
D. some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell
from makeshift tables.
answer
each lemonade stand sells the same kind of lemonade.
question
Which of the following is the most likely to be a variable factor of production at an university?
A. The number of librarians.
B. The size of the football stadium.
C. The size of the student union.
D. The location of the university
A. The number of librarians.
B. The size of the football stadium.
C. The size of the student union.
D. The location of the university
answer
The number of librarians.
question
Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345.
If the firm's fixed cost increases from $200 to $300, the firm will:
A. reduce its output.
B. raise its price.
C. earn a greater profit.
D. earn a smaller profit
If the firm's fixed cost increases from $200 to $300, the firm will:
A. reduce its output.
B. raise its price.
C. earn a greater profit.
D. earn a smaller profit
answer
earn a smaller profit
question
Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If
the total cost of its fixed factors of production falls from $500 to $400, the firm will:
A. expand its output.
B. lower its price.
C. earn greater profits or larger losses
D. earn smaller profits or larger losses.
the total cost of its fixed factors of production falls from $500 to $400, the firm will:
A. expand its output.
B. lower its price.
C. earn greater profits or larger losses
D. earn smaller profits or larger losses.
answer
earn greater profits or larger losses
question
A profit-maximizing firm will shut down if, at the firm's profit maximizing level of output, its total revenue is
______
A. less than its total cost.
B. less than its variable cost.
C. less than its average total cost.
D. less than its average variable cost.
______
A. less than its total cost.
B. less than its variable cost.
C. less than its average total cost.
D. less than its average variable cost.
answer
less than its variable cost.
question
Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss.
If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:
A. should shut down.
B. should not shut down if its total variable cost is less than $750.
C. is not maximizing its profit.
D. should produce more than 500 units a day.
If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:
A. should shut down.
B. should not shut down if its total variable cost is less than $750.
C. is not maximizing its profit.
D. should produce more than 500 units a day.
answer
should not shut down if its total variable cost is less than $750.
question
In general, perfectly competitive firms maximize profit if they produce a level of output at which:
A. average cost is minimized.
B. total cost is minimized.
C. average cost equals price.
D. marginal cost equals price.
A. average cost is minimized.
B. total cost is minimized.
C. average cost equals price.
D. marginal cost equals price.
answer
marginal cost equals price.
question
Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the
1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its
variable cost, the firm should:
A. leave production unchanged.
B. increase price to increase profits.
C. increase production to increase profits.
D. decrease production to lower losses.
1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its
variable cost, the firm should:
A. leave production unchanged.
B. increase price to increase profits.
C. increase production to increase profits.
D. decrease production to lower losses.
answer
leave production unchanged.
question
A profit-maximizing firm will only produce a positive amount of output if:
A. its total revenue is greater than its total cost.
B. its total revenue is greater than its fixed cost.
C. its total revenue equals its total cost.
D. its total revenue is greater than or equal to its variable cost.
A. its total revenue is greater than its total cost.
B. its total revenue is greater than its fixed cost.
C. its total revenue equals its total cost.
D. its total revenue is greater than or equal to its variable cost.
answer
its total revenue is greater than or equal to its variable cost.
question
When the price of a perfectly competitive firm's output rises:
A. the firm will produce more.
B. the firm's marginal cost curve will shift to the right.
C. the firm will produce less.
D. the firm's marginal cost curve will shift to the left.
A. the firm will produce more.
B. the firm's marginal cost curve will shift to the right.
C. the firm will produce less.
D. the firm's marginal cost curve will shift to the left.
answer
the firm will produce more.
question
An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the
number of firms producing espresso will lead to a(n) ______.
A. quantity supplied; decrease in supply
B. supply; increase in quantity supplied
C. quantity supplied; increase in supply
D. supply; decrease in supply
number of firms producing espresso will lead to a(n) ______.
A. quantity supplied; decrease in supply
B. supply; increase in quantity supplied
C. quantity supplied; increase in supply
D. supply; decrease in supply
answer
quantity supplied; increase in supply
question
As price increases, firms find that it is:
A. beneficial to produce more units of output.
B. more difficult to sell their product.
C. beneficial to produce fewer units of output.
D. easier to sell their product.
A. beneficial to produce more units of output.
B. more difficult to sell their product.
C. beneficial to produce fewer units of output.
D. easier to sell their product.
answer
beneficial to produce more units of output.
question
When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage
change in quantity demanded is typically:
A. greater than one.
B. positive.
C. less than one.
D. negative.
change in quantity demanded is typically:
A. greater than one.
B. positive.
C. less than one.
D. negative.
answer
positive.
question
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then
the price elasticity of demand is equal to:
A. 0.05.
B. 0.5.
C. 2.
D. 5.
the price elasticity of demand is equal to:
A. 0.05.
B. 0.5.
C. 2.
D. 5.
answer
0.5.
question
The price elasticity of demand is typically expressed as a positive number because:
A. price and quantity move in the same direction.
B. the demand curve has a positive slope.
C. it's convenient to use absolute values.
D. both the numerator and the denominator are negative, so the formula yields a positive number.
A. price and quantity move in the same direction.
B. the demand curve has a positive slope.
C. it's convenient to use absolute values.
D. both the numerator and the denominator are negative, so the formula yields a positive number.
answer
it's convenient to use absolute values.
question
If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the
price elasticity of demand?
A. ½.
B. 2.
C. 10.
D. 20.
price elasticity of demand?
A. ½.
B. 2.
C. 10.
D. 20.
answer
2.
question
If the price elasticity of demand for a good is greater than one, then the demand for that good is:
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly elastic.
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly elastic.
answer
elastic.
question
The demand for a good is unit elastic with respect to price if the price elasticity of demand is:
A. equal to one.
B. greater than one.
C. less than one.
D. greater than negative one.
A. equal to one.
B. greater than one.
C. less than one.
D. greater than negative one.
answer
equal to one.
question
Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin.
The demand for aspirin, therefore, is
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly inelastic.
The demand for aspirin, therefore, is
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly inelastic.
answer
inelastic.
question
If the demand for a good is highly elastic, that good is likely to have:
A. many close complements.
B. few close complements.
C. many close substitutes.
D. few close substitutes
A. many close complements.
B. few close complements.
C. many close substitutes.
D. few close substitutes
answer
many close substitutes.
question
For which of the following products is demand likely to be least elastic with respect to price?
A. Food
B. Vegetables
C. Green vegetables
D. Green beans
A. Food
B. Vegetables
C. Green vegetables
D. Green beans
answer
Food
question
All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the
price elasticity of demand for big-ticket items such as flat-screen TVs.
A. higher
B. lower
C. very high
D. the same
price elasticity of demand for big-ticket items such as flat-screen TVs.
A. higher
B. lower
C. very high
D. the same
answer
lower
question
You would expect the price elasticity of demand for transportation generally to be:
A. the same as price elasticity of the demand for bus tickets.
B. greater than price elasticity of the demand for bus tickets.
C. less than price elasticity of the demand for bus tickets.
D. greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less
than price elasticity of the demand for bus tickets when the prices of bus tickets fall.
A. the same as price elasticity of the demand for bus tickets.
B. greater than price elasticity of the demand for bus tickets.
C. less than price elasticity of the demand for bus tickets.
D. greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less
than price elasticity of the demand for bus tickets when the prices of bus tickets fall.
answer
less than price elasticity of the demand for bus tickets.
question
The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g.,
chicken) is that:
A. there are fewer substitutes for Tyson chicken than for chicken generally.
B. it takes a lot of time to adjust to a substitute brand of chicken.
C. the share of income spent on "chicken" is larger than spent on "Tyson Chicken".
D. there are fewer substitutes for chicken generally than for Tyson chicken.
chicken) is that:
A. there are fewer substitutes for Tyson chicken than for chicken generally.
B. it takes a lot of time to adjust to a substitute brand of chicken.
C. the share of income spent on "chicken" is larger than spent on "Tyson Chicken".
D. there are fewer substitutes for chicken generally than for Tyson chicken.
answer
there are fewer substitutes for chicken generally than for Tyson chicken.
question
Economists have found that the price elasticity of demand for water is higher in the summer than in the winter.
Why is this likely to be so?
A. Winter is longer than summer, and price elasticity is lower over longer time horizons.
B. Summer is longer than winter, and price elasticity is higher over longer time horizons.
C. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use
tends to be for both necessities and non-necessities such as gardening and recreation.
D. People take more vacations in the summer and so use less water at home.
Why is this likely to be so?
A. Winter is longer than summer, and price elasticity is lower over longer time horizons.
B. Summer is longer than winter, and price elasticity is higher over longer time horizons.
C. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use
tends to be for both necessities and non-necessities such as gardening and recreation.
D. People take more vacations in the summer and so use less water at home.
answer
Winter water use tends to be for necessities such as cleaning and cooking, and summer water use
tends to be for both necessities and non-necessities such as gardening and recreation.
tends to be for both necessities and non-necessities such as gardening and recreation.
question
On a given linear demand curve, as price increases demand becomes ______
A. more elastic.
B. less elastic.
C. more negative.
D. more variable.
A. more elastic.
B. less elastic.
C. more negative.
D. more variable.
answer
more elastic.
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
A. 0.
B. 1.
C. infinity.
D. the quantity.
A. 0.
B. 1.
C. infinity.
D. the quantity.
answer
infinity.
question
Which of the following determines whether a firm will earn higher revenues when it raises its price?
A. The cost of the firm's inputs.
B. Government regulation of the industry.
C. The price elasticity of demand.
D. None of the above, because companies always earn higher revenues when they increase price
A. The cost of the firm's inputs.
B. Government regulation of the industry.
C. The price elasticity of demand.
D. None of the above, because companies always earn higher revenues when they increase price
answer
The price elasticity of demand.
question
During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods
with a life expectancy of 3 years or more) decline. Apparently, durable goods are:
A. substitutes.
B. normal goods.
D. complements.
D. inferior goods.
with a life expectancy of 3 years or more) decline. Apparently, durable goods are:
A. substitutes.
B. normal goods.
D. complements.
D. inferior goods.
answer
normal goods.
question
In surveying their alumni, State U's economics department discovered that ramen noodle consumption
declined once students graduated and found jobs. One conclusion the survey team might draw from this result
is that:
A. there is excess demand for ramen noodles.
B. the equilibrium price for ramen noodles is too high.
C. college graduates have a high reservation price for ramen noodles.
D. ramen noodles are an inferior good.
declined once students graduated and found jobs. One conclusion the survey team might draw from this result
is that:
A. there is excess demand for ramen noodles.
B. the equilibrium price for ramen noodles is too high.
C. college graduates have a high reservation price for ramen noodles.
D. ramen noodles are an inferior good.
answer
ramen noodles are an inferior good.
question
Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data.
You expect to find that the income elasticity for plaid flannel shirts is:
A. close to zero.
B. greater than zero, but less than one.
C. greater than one.
D. less than zero.
You expect to find that the income elasticity for plaid flannel shirts is:
A. close to zero.
B. greater than zero, but less than one.
C. greater than one.
D. less than zero.
answer
less than zero.
question
The price elasticity of supply at a point is:
A. the percentage change in quantity supplied divided by the percentage change in price.
B. the percentage change in price divided by the percentage change in quantity supplied.
C. the change in quantity supplied divided by the change in price.
D. the change in price divided by the change in quantity supplied.
A. the percentage change in quantity supplied divided by the percentage change in price.
B. the percentage change in price divided by the percentage change in quantity supplied.
C. the change in quantity supplied divided by the change in price.
D. the change in price divided by the change in quantity supplied.
answer
the percentage change in quantity supplied divided by the percentage change in price.
question
Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from
100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is
______.
A. 2/3; elastic
B. 2/3; inelastic
C. 3/2; elastic
D. 3/2; inelastic
100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is
______.
A. 2/3; elastic
B. 2/3; inelastic
C. 3/2; elastic
D. 3/2; inelastic
answer
3/2; elastic
question
It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden
increase in the demand for orthopedic surgeons will:
A. not affect the salaries of orthopedic surgeons.
B. have no impact on the number of people who decide to become orthopedic surgeons.
C. lead to a large increase in the number of orthopedic surgeons.
D. have little effect on the number of trained orthopedic surgeons.
increase in the demand for orthopedic surgeons will:
A. not affect the salaries of orthopedic surgeons.
B. have no impact on the number of people who decide to become orthopedic surgeons.
C. lead to a large increase in the number of orthopedic surgeons.
D. have little effect on the number of trained orthopedic surgeons.
answer
have little effect on the number of trained orthopedic surgeons.
question
The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply
curve for the Hope Diamond is
A. elastic.
B. perfectly inelastic.
C. unit elastic.
D. perfectly elastic.
curve for the Hope Diamond is
A. elastic.
B. perfectly inelastic.
C. unit elastic.
D. perfectly elastic.
answer
perfectly inelastic.
question
For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many
seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short
run than in the long run.
A. higher
B. lower
C. the same
D. more variable
seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short
run than in the long run.
A. higher
B. lower
C. the same
D. more variable
answer
lower
question
In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the
price of water doubled. The community then drilled the well deeper and started pumping again. In this
community,
A. the supply of water is perfectly inelastic because it is a finite resource.
B. water production is characterized by increasing opportunity costs.
C. markets cannot reach equilibrium because there is a persistent shortage of water.
D. higher water prices can reduce quantity demanded but cannot increase quantity supplied.
price of water doubled. The community then drilled the well deeper and started pumping again. In this
community,
A. the supply of water is perfectly inelastic because it is a finite resource.
B. water production is characterized by increasing opportunity costs.
C. markets cannot reach equilibrium because there is a persistent shortage of water.
D. higher water prices can reduce quantity demanded but cannot increase quantity supplied.
answer
water production is characterized by increasing opportunity costs.
question
In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories.
Therefore, Cuba is an example of a
A. centralized economy.
B. capitalist economy.
C. mixed economy.
D. pure free-market economy.
Therefore, Cuba is an example of a
A. centralized economy.
B. capitalist economy.
C. mixed economy.
D. pure free-market economy.
answer
centralized economy.
question
A good example of central planning at work in the USA would be
A. Burger King's value meal price control.
B. McDonald's fries being the same everywhere in the USA.
C. union wages.
D. New York City's rent control.
A. Burger King's value meal price control.
B. McDonald's fries being the same everywhere in the USA.
C. union wages.
D. New York City's rent control.
answer
New York City's rent control.
question
The entire group of buyers and sellers of a particular good or service makes up
A. only the demand curve.
B. only the supply curve.
C. a market.
D. equilibrium.
A. only the demand curve.
B. only the supply curve.
C. a market.
D. equilibrium.
answer
a market.
question
In order to understand how the price of a good is determined in the free market, one must account for the
desires of:
A. purchasers exclusively.
B. sellers exclusively.
C. governmental agencies exclusively.
D. purchasers and sellers.
desires of:
A. purchasers exclusively.
B. sellers exclusively.
C. governmental agencies exclusively.
D. purchasers and sellers.
answer
purchasers and sellers.
question
Buyers and sellers of a particular good comprise the
A. market for the good.
B. demand for the good.
C. supply for the good.
D. production possibilities curve for the good.
A. market for the good.
B. demand for the good.
C. supply for the good.
D. production possibilities curve for the good.
answer
market for the good.
question
"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls."
This statement reflects the behavior underlying
A. the demand curve.
B. an increase in demand.
C. the supply curve.
D. a decrease in the demand curve
This statement reflects the behavior underlying
A. the demand curve.
B. an increase in demand.
C. the supply curve.
D. a decrease in the demand curve
answer
the demand curve.
question
Which of the following is NOT true of a demand curve?
A. It has negative slope.
B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors
constant.
C. It relates the price of an item to the quantity demanded of that item.
D. It shows how an increase in price leads to an increase in quantity demanded of a good.
A. It has negative slope.
B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors
constant.
C. It relates the price of an item to the quantity demanded of that item.
D. It shows how an increase in price leads to an increase in quantity demanded of a good.
answer
It shows how an increase in price leads to an increase in quantity demanded of a good.
question
A demand curve is ________ sloping because __________________.
A. downward; of increasing opportunity costs
B. upward; people prefer to purchase high-quality consumer goods
C. downward; reservation prices tend to fall over time
D. downward; fewer people are willing to buy the item at higher prices
A. downward; of increasing opportunity costs
B. upward; people prefer to purchase high-quality consumer goods
C. downward; reservation prices tend to fall over time
D. downward; fewer people are willing to buy the item at higher prices
answer
downward; fewer people are willing to buy the item at higher prices
question
As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee
decreases. This is called
A. the income effect.
B. the change in equilibrium.
C. the substitution effect.
D. a shift in the demand curve.
decreases. This is called
A. the income effect.
B. the change in equilibrium.
C. the substitution effect.
D. a shift in the demand curve.
answer
the substitution effect.
question
You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you get to the
restaurant, you find out the price for Double Cheeseburger has increased from $2.50 to $2.99. You decide to
have two single Cheeseburgers for lunch. This is best described as a(n)
A. substitution effect.
B. income effect.
C. buyer's reservation price.
D. seller's reservation price.
restaurant, you find out the price for Double Cheeseburger has increased from $2.50 to $2.99. You decide to
have two single Cheeseburgers for lunch. This is best described as a(n)
A. substitution effect.
B. income effect.
C. buyer's reservation price.
D. seller's reservation price.
answer
income effect.
question
The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish
increased. Jen decides to find a cheaper brand of nail polish. This is called a(n)
A. substitution effect of a price change.
B. income effect of a price change.
C. decrease in buyer's reservation price.
D. increase in buyer's reservation price.
increased. Jen decides to find a cheaper brand of nail polish. This is called a(n)
A. substitution effect of a price change.
B. income effect of a price change.
C. decrease in buyer's reservation price.
D. increase in buyer's reservation price.
answer
substitution effect of a price change.
question
The buyer's reservation price of a particular good or service is the
A. minimum amount one would be willing to pay for it.
B. same as the market price.
C. maximum amount one would be willing to pay for it.
D. price one must pay to ensure one gets it.
A. minimum amount one would be willing to pay for it.
B. same as the market price.
C. maximum amount one would be willing to pay for it.
D. price one must pay to ensure one gets it.
answer
maximum amount one would be willing to pay for it.
question
Shelly purchases a leather purse for $400. One can infer that
A. she paid too much.
B. her reservation price was at least $400.
C. her reservation price was exactly $400.
D. her reservation price was less than $400.
A. she paid too much.
B. her reservation price was at least $400.
C. her reservation price was exactly $400.
D. her reservation price was less than $400.
answer
her reservation price was at least $400.
question
Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping.
A. goods; not
B. more; downward
C. less; upward
D. more; upward
A. goods; not
B. more; downward
C. less; upward
D. more; upward
answer
more; upward
question
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called
her
A. marginal revenue.
B. equilibrium price.
C. reservation price.
D. producers surplus.
her
A. marginal revenue.
B. equilibrium price.
C. reservation price.
D. producers surplus.
answer
reservation price.
question
A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve
is said to be stable because
A. price will never change.
B. quantity will never change.
C. demand will never change.
D. at any price other than equilibrium, forces in the market move price towards the equilibrium.
is said to be stable because
A. price will never change.
B. quantity will never change.
C. demand will never change.
D. at any price other than equilibrium, forces in the market move price towards the equilibrium.
answer
at any price other than equilibrium, forces in the market move price towards the equilibrium.
question
Which of the following is NOT a characteristic of a market in equilibrium?
A. Excess supply is zero.
B. All consumers are able to purchase as much as they wish.
C. Excess demand is zero.
D. The equilibrium price is stable, i.e., there is no pressure for it to change.
A. Excess supply is zero.
B. All consumers are able to purchase as much as they wish.
C. Excess demand is zero.
D. The equilibrium price is stable, i.e., there is no pressure for it to change.
answer
All consumers are able to purchase as much as they wish.
question
A market in disequilibrium would feature
A. a stable price.
B. consumers able to purchase all they wish at the market price.
C. a stable quantity.
D. either excess supply or excess demand
A. a stable price.
B. consumers able to purchase all they wish at the market price.
C. a stable quantity.
D. either excess supply or excess demand
answer
either excess supply or excess demand
question
The equilibrium price and quantity of any good or service is established by
A. only demanders.
B. only suppliers.
C. government regulations.
D. both demanders and suppliers.
A. only demanders.
B. only suppliers.
C. government regulations.
D. both demanders and suppliers.
answer
both demanders and suppliers.
question
A shortage occurs when
A. demand is greater than supply.
B. the equilibrium price is too high.
C. quantity demanded exceeds quantity supplied.
D. quantity supplied exceeds quantity demanded.
A. demand is greater than supply.
B. the equilibrium price is too high.
C. quantity demanded exceeds quantity supplied.
D. quantity supplied exceeds quantity demanded.
answer
quantity demanded exceeds quantity supplied.
question
If the market for Sport Utility Vehicles has excess supply, then one can say that
A. supply is greater than demand.
B. quantity supplied is greater than quantity demanded.
C. demand is greater than supply.
D. quantity demanded is greater than quantity supplied.
A. supply is greater than demand.
B. quantity supplied is greater than quantity demanded.
C. demand is greater than supply.
D. quantity demanded is greater than quantity supplied.
answer
quantity supplied is greater than quantity demanded.
question
When the price of a good is below its equilibrium value,
A. consumers will bid the price up.
B. excess supply will occur.
C. it will tend to stay below the equilibrium value.
D. suppliers will notice their inventories are growing.
A. consumers will bid the price up.
B. excess supply will occur.
C. it will tend to stay below the equilibrium value.
D. suppliers will notice their inventories are growing.
answer
consumers will bid the price up.
question
In a free market, if the price of a good is below the equilibrium price, then
A. government needs to set a higher price.
B. suppliers, dissatisfied with growing inventories, will raise the price.
C. demanders, to acquire the good, will bid the price higher.
D. suppliers, dissatisfied with growing inventories, will lower the price.
A. government needs to set a higher price.
B. suppliers, dissatisfied with growing inventories, will raise the price.
C. demanders, to acquire the good, will bid the price higher.
D. suppliers, dissatisfied with growing inventories, will lower the price.
answer
demanders, to acquire the good, will bid the price higher.
question
In a free market, if the price of a good is above the equilibrium price, then
A. suppliers, dissatisfied with growing inventories, will raise the price.
B. demanders, wanting to ensure they acquire the good, will bid the price lower.
C. government needs to set a lower price.
D. suppliers, dissatisfied with growing inventories, will lower the price.
A. suppliers, dissatisfied with growing inventories, will raise the price.
B. demanders, wanting to ensure they acquire the good, will bid the price lower.
C. government needs to set a lower price.
D. suppliers, dissatisfied with growing inventories, will lower the price.
answer
suppliers, dissatisfied with growing inventories, will lower the price.
question
Which of following is not true of an equilibrium price?
A. Consumers who are willing to pay the equilibrium price can acquire the good.
B. It measures the value of the last unit sold to consumers.
C. It is always a fair and just price.
D. Firms who are willing to accept the equilibrium price can sell what they produce.
A. Consumers who are willing to pay the equilibrium price can acquire the good.
B. It measures the value of the last unit sold to consumers.
C. It is always a fair and just price.
D. Firms who are willing to accept the equilibrium price can sell what they produce.
answer
It is always a fair and just price.
question
When a market is not in equilibrium
A. government intervention is required to achieve equilibrium.
B. firms will increase contributions to political action committees.
C. the economic motives of sellers and buyers will move the market to its equilibrium.
D. it will simply stay in a state of disequilibrium.
A. government intervention is required to achieve equilibrium.
B. firms will increase contributions to political action committees.
C. the economic motives of sellers and buyers will move the market to its equilibrium.
D. it will simply stay in a state of disequilibrium.
answer
the economic motives of sellers and buyers will move the market to its equilibrium.
question
If price is above the equilibrium value, then
A. producers will hope that buyers want more in the future.
B. buyers are unhappy because they are unable to find the good for sale.
C. producers find their inventories growing and will start to cut price.
D. government must enforce a price control.
A. producers will hope that buyers want more in the future.
B. buyers are unhappy because they are unable to find the good for sale.
C. producers find their inventories growing and will start to cut price.
D. government must enforce a price control.
answer
producers find their inventories growing and will start to cut price.
question
Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers
were selling tickets in the same seating area as yours for $25. What is probably true?
A. There is excess demand for this concert at the Ticketmaster price.
B. The ticket you bought was under-priced for the market.
C. There is an excess supply of tickets for this concert at the Ticketmaster price.
D. The Ticketmaster price is an equilibrium price.
were selling tickets in the same seating area as yours for $25. What is probably true?
A. There is excess demand for this concert at the Ticketmaster price.
B. The ticket you bought was under-priced for the market.
C. There is an excess supply of tickets for this concert at the Ticketmaster price.
D. The Ticketmaster price is an equilibrium price.
answer
There is an excess supply of tickets for this concert at the Ticketmaster price.
question
You have noticed that there is a persistent shortage of teachers in an inner-city school district in your
state. Based on this observation, you suspect that
A. the wage for teachers at those schools is higher than at other schools in the state.
B. the wage for teachers at those schools is lower than the equilibrium wage.
C. there is an excess supply of teachers.
D. the reservation price among teachers is lower than for other professions.
state. Based on this observation, you suspect that
A. the wage for teachers at those schools is higher than at other schools in the state.
B. the wage for teachers at those schools is lower than the equilibrium wage.
C. there is an excess supply of teachers.
D. the reservation price among teachers is lower than for other professions.
answer
the wage for teachers at those schools is lower than the equilibrium wage.
question
Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy
car, their increased demand for gas:
A. does not affect you.
B. causes companies to charge a lower price, thus benefiting you.
C. causes the price you pay for gas to increase.
D. does not change the price you pay, but reduces the quantity of gas supplied.
car, their increased demand for gas:
A. does not affect you.
B. causes companies to charge a lower price, thus benefiting you.
C. causes the price you pay for gas to increase.
D. does not change the price you pay, but reduces the quantity of gas supplied.
answer
causes the price you pay for gas to increase.
question
Economics is best defined as the study of
A. prices and quantities.
B. inflation and interest rates.
C. how people make choices under the conditions of scarcity and the results of the choices.
D. wages and incomes.
A. prices and quantities.
B. inflation and interest rates.
C. how people make choices under the conditions of scarcity and the results of the choices.
D. wages and incomes.
answer
how people make choices under the conditions of scarcity and the results of choices
question
Economic questions always deal with
A. financial matters.
B. political matters.
C. insufficient resources.
D. choice in the face of limited resources.
A. financial matters.
B. political matters.
C. insufficient resources.
D. choice in the face of limited resources.
answer
choice in the face of limited resources
question
The central concern of economics is
A. poverty.
B. scarcity.
C. wealth accumulation.
D. overconsumption.
A. poverty.
B. scarcity.
C. wealth accumulation.
D. overconsumption.
answer
scarcity
question
The scarcity principle indicates that
A. no matter how much one has, it is never enough.
B. compared to 100 years ago, individuals have less time today.
C. with limited resources, having more of "this" means having less of "that."
D. because tradeoffs must be made, resources are therefore scarce.
A. no matter how much one has, it is never enough.
B. compared to 100 years ago, individuals have less time today.
C. with limited resources, having more of "this" means having less of "that."
D. because tradeoffs must be made, resources are therefore scarce.
answer
with limited resources, having more of "this" means having less of "that"
question
The logical implication of the scarcity principle is that
A. one will never be satisfied with what one has.
B. as wealth increases, making tradeoffs becomes less necessary.
C. as wealth decreases, making tradeoffs becomes less necessary.
D. choices must be made.
A. one will never be satisfied with what one has.
B. as wealth increases, making tradeoffs becomes less necessary.
C. as wealth decreases, making tradeoffs becomes less necessary.
D. choices must be made.
answer
choices must be made
question
The principle of scarcity applies to
A. the poor exclusively.
B. all consumers.
C. all firms.
D. everyone; consumers, firms, governments, and nations.
A. the poor exclusively.
B. all consumers.
C. all firms.
D. everyone; consumers, firms, governments, and nations.
answer
everyone; consumers, firms, governments, and nations
question
Forest is a mountain man living in complete isolation in Montana. He is completely self-sufficient through
hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer
A. the scarcity principle does not apply to Forest.
B. Forest is not required to make choices.
C. the scarcity principle still applies because more hunting means less fishing and farming.
D. Forest is very satisfied.
hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer
A. the scarcity principle does not apply to Forest.
B. Forest is not required to make choices.
C. the scarcity principle still applies because more hunting means less fishing and farming.
D. Forest is very satisfied.
answer
the scarcity principle still applies because more hunting means less fishing and farming
question
Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study
or go to the gym and work out. This is
A. not an economic problem, because neither one costs money.
B. not an economic problem, because it's an hour that is wasted no matter what Chris does.
C. an economic problem because the tuition Chris pays covers both the gym and the library.
D. an economic problem, because the one-hour time limit means Chris must make a choice.
or go to the gym and work out. This is
A. not an economic problem, because neither one costs money.
B. not an economic problem, because it's an hour that is wasted no matter what Chris does.
C. an economic problem because the tuition Chris pays covers both the gym and the library.
D. an economic problem, because the one-hour time limit means Chris must make a choice.
answer
an economic problem, because the one-hour time limit means Chris must make a choice
question
Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the
whole weekend to write the paper. Josh decided to stay home and work on the paper. According to the
scarcity principle, the reason Josh didn't go to the game is that
A. Josh prefers schoolwork to football games.
B. writing the paper is easier than going to the game.
C. Josh doesn't have enough time for writing the paper and going to the game.
D. it's too expensive to go to the game.
whole weekend to write the paper. Josh decided to stay home and work on the paper. According to the
scarcity principle, the reason Josh didn't go to the game is that
A. Josh prefers schoolwork to football games.
B. writing the paper is easier than going to the game.
C. Josh doesn't have enough time for writing the paper and going to the game.
D. it's too expensive to go to the game.
answer
Josh doesn't have enough time for writing the paper and going to the game.
question
Whether studying the size of the U.S. economy or the number of children a couple will choose to have,
the unifying concept is that wants are
A. limited, resources are limited, and thus tradeoffs must be made.
B. unlimited, resources are limited, and thus tradeoffs must be made.
C. unlimited, resources are limited to some but not to others and thus some people must make tradeoffs.
D. unlimited, resources are limited, and thus government needs to do more.
the unifying concept is that wants are
A. limited, resources are limited, and thus tradeoffs must be made.
B. unlimited, resources are limited, and thus tradeoffs must be made.
C. unlimited, resources are limited to some but not to others and thus some people must make tradeoffs.
D. unlimited, resources are limited, and thus government needs to do more.
answer
unlimited, resources are limited, and thus tradeoffs must be made.
question
The cost-benefit principle indicates that an action should be taken
A. if the total benefits exceed the total costs.
B. if the average benefits exceed the average costs.
C. if the net benefit (benefit minus cost) is zero.
D. if the extra benefit is greater than or equal to the extra costs.
A. if the total benefits exceed the total costs.
B. if the average benefits exceed the average costs.
C. if the net benefit (benefit minus cost) is zero.
D. if the extra benefit is greater than or equal to the extra costs.
answer
if the extra benefit is greater than or equal to the extra costs.
question
When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra
costs, that person is
A. violating the cost-benefit principle.
B. following the scarcity principle.
C. following the cost-benefit principle.
D. pursuing the activity too long.
costs, that person is
A. violating the cost-benefit principle.
B. following the scarcity principle.
C. following the cost-benefit principle.
D. pursuing the activity too long.
answer
following the cost-benefit principle.
question
Choosing to study for an exam until the extra benefit (improved score) equals the extra cost (mental
fatigue) is
A. not rational.
B. an application of the cost-benefit principle.
C. an application of the scarcity principle.
D. the relevant opportunity cost.
fatigue) is
A. not rational.
B. an application of the cost-benefit principle.
C. an application of the scarcity principle.
D. the relevant opportunity cost.
answer
an application of the cost-benefit principle.
question
The scarcity principle indicates that __________ and the cost-benefit principle indicates __________.
A. choices must be made; how to make the choices
B. choices must be made; the costs can never outweigh the benefits of the choices
C. rare goods are expensive; the costs should outweigh the benefits of the choices
D. rare goods are expensive; the costs can never outweigh the benefits of the choices
A. choices must be made; how to make the choices
B. choices must be made; the costs can never outweigh the benefits of the choices
C. rare goods are expensive; the costs should outweigh the benefits of the choices
D. rare goods are expensive; the costs can never outweigh the benefits of the choices
answer
choices must be made; how to make the choices
question
A rational person is one who
A. is reasonable.
B. makes choices that are easily understood.
C. possesses well-defined goals and seeks to achieve them.
D. is highly cynical.
A. is reasonable.
B. makes choices that are easily understood.
C. possesses well-defined goals and seeks to achieve them.
D. is highly cynical.
answer
possesses well-defined goals and seeks to achieve them.
question
Janie must either mow the lawn or wash clothes, earning her a benefit of $30 or $45, respectively. She
dislikes both equally and they both take the same amount of time. Janie will therefore choose to _________
because the economic surplus is ________.
A. mow; greater
B. wash; greater
C. mow; smaller
D. wash; smaller
dislikes both equally and they both take the same amount of time. Janie will therefore choose to _________
because the economic surplus is ________.
A. mow; greater
B. wash; greater
C. mow; smaller
D. wash; smaller
answer
wash; greater
question
Dean decided to play golf rather than prepare for his exam in economics that is the day after tomorrow.
One can infer that
A. Dean has made an irrational choice.
B. Dean is doing poorly in his economics class.
C. the economic surplus from playing golf exceeded the surplus from studying.
D. the cost of studying was less than the cost of golfing.
One can infer that
A. Dean has made an irrational choice.
B. Dean is doing poorly in his economics class.
C. the economic surplus from playing golf exceeded the surplus from studying.
D. the cost of studying was less than the cost of golfing.
answer
the economic surplus from playing golf exceeded the surplus from studying.
question
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
The opportunity cost of attending Elite U is
A. $50,000
B. $10,000
C. $20,000
D. $15,000
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
The opportunity cost of attending Elite U is
A. $50,000
B. $10,000
C. $20,000
D. $15,000
answer
$20,000
question
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
The opportunity cost of attending State College is
A. $30,000
B. $20,000
C. $15,000
D. $10,000
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
The opportunity cost of attending State College is
A. $30,000
B. $20,000
C. $15,000
D. $10,000
answer
$15,000
question
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
Larry maximizes his surplus by attending
A. Elite U, because $60,000 is greater than the benefit at the other schools.
B. State College, because the difference between the benefit and cost is greatest there.
C. NoName U, because Larry has a full scholarship there.
D. Elite U, because the opportunity costs of attending Elite U are the lowest.
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
Larry maximizes his surplus by attending
A. Elite U, because $60,000 is greater than the benefit at the other schools.
B. State College, because the difference between the benefit and cost is greatest there.
C. NoName U, because Larry has a full scholarship there.
D. Elite U, because the opportunity costs of attending Elite U are the lowest.
answer
State College, because the difference between the benefit and cost is greatest there.
question
Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
Larry has decided to go to Elite U. He must have
A. calculated his surplus from each choice and picked the one with the highest surplus.
B. underestimated the benefits of attending NoName.
C. overestimated the benefits of attending Elite U.
D. determined the opportunity cost of each choice and picked the one with the lowest opportunity cost.
and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College
costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College
at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
Larry has decided to go to Elite U. He must have
A. calculated his surplus from each choice and picked the one with the highest surplus.
B. underestimated the benefits of attending NoName.
C. overestimated the benefits of attending Elite U.
D. determined the opportunity cost of each choice and picked the one with the lowest opportunity cost.
answer
overestimated the benefits of attending Elite U.
question
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks
rather than spending an equal amount of money to go to a movie. The opportunity cost of going to the beach
is:
A. the $12 she spent on the umbrella, food and drinks.
B. only $2 because she would have spent the money on food and drinks whether or not she went to the
beach.
C. the movie she missed seeing.
D. the movie she missed seeing plus the $12 she spent on the umbrella, food and drinks.
rather than spending an equal amount of money to go to a movie. The opportunity cost of going to the beach
is:
A. the $12 she spent on the umbrella, food and drinks.
B. only $2 because she would have spent the money on food and drinks whether or not she went to the
beach.
C. the movie she missed seeing.
D. the movie she missed seeing plus the $12 she spent on the umbrella, food and drinks.
answer
the movie she missed seeing.
question
The opportunity cost of an activity is the value of
A. an alternative forgone.
B. the next-best alternative forgone.
C. the least-best alternative forgone.
D. the difference between the chosen activity and the next-best alternative forgone.
A. an alternative forgone.
B. the next-best alternative forgone.
C. the least-best alternative forgone.
D. the difference between the chosen activity and the next-best alternative forgone.
answer
the next-best alternative forgone.
question
Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dogsitting
job that pays $30. The cost of seeing the movie is
A. $7.
B. $30.
C. $37.
D. $37 minus the benefit of seeing the movie.
job that pays $30. The cost of seeing the movie is
A. $7.
B. $30.
C. $37.
D. $37 minus the benefit of seeing the movie.
answer
$37.
question
Economic surplus is
A. the benefit gained by taking an action.
B. the price paid to take an action.
C. the difference between the benefit gained and the cost incurred of taking an action.
D. the wage someone would have to earn in order to take an action.
A. the benefit gained by taking an action.
B. the price paid to take an action.
C. the difference between the benefit gained and the cost incurred of taking an action.
D. the wage someone would have to earn in order to take an action.
answer
the difference between the benefit gained and the cost incurred of taking an action.
question
The Governor of your state has cut the budget for the University and increased spending on Medicaid.
This is an example of
A. the pitfall of considering average costs instead of marginal costs.
B. poor normative economic decision making.
C. poor positive economic decision making.
D. choice in the face of limited resources.
This is an example of
A. the pitfall of considering average costs instead of marginal costs.
B. poor normative economic decision making.
C. poor positive economic decision making.
D. choice in the face of limited resources.
answer
choice in the face of limited resources.
question
Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck, but she finds one for $12,000.
Her __________ is __________.
A. benefit; $12,000
B. cost; $15,000
C. economic surplus; $3,000
D. economic surplus; $12,000
Her __________ is __________.
A. benefit; $12,000
B. cost; $15,000
C. economic surplus; $3,000
D. economic surplus; $12,000
answer
economic surplus; $3,000
question
In general, rational decision making requires one to choose the actions that yield the
A. largest total benefit.
B. smallest total cost.
C. smallest net benefit.
D. largest economic surplus.
A. largest total benefit.
B. smallest total cost.
C. smallest net benefit.
D. largest economic surplus.
answer
largest economic surplus.
question
Suppose the most you would be willing to pay for a plane ticket home is $250, but you buy one online for
$175. The economic surplus of buying the online ticket is:
A. $175.
B. $250.
C. $75.
D. $0.
$175. The economic surplus of buying the online ticket is:
A. $175.
B. $250.
C. $75.
D. $0.
answer
$75.
question
The use of economic models, like the cost-benefit principle, means economists believe that
A. this is exactly how people choose between alternatives.
B. this is a reasonable abstraction of how people choose between alternatives.
C. those who explicitly make decisions this way are smarter.
D. with enough education, all people will start to explicitly make decisions this way.
A. this is exactly how people choose between alternatives.
B. this is a reasonable abstraction of how people choose between alternatives.
C. those who explicitly make decisions this way are smarter.
D. with enough education, all people will start to explicitly make decisions this way.
answer
this is a reasonable abstraction of how people choose between alternatives.
question
An individual has an absolute advantage in producing pizzas if that individual:
A. has a lower opportunity cost of producing pizzas than anyone else.
B. can produce more pizzas in a given amount of time than anyone else.
C. has a higher opportunity cost of producing pizzas than anyone else.
D. charges the lowest price for pizzas.
A. has a lower opportunity cost of producing pizzas than anyone else.
B. can produce more pizzas in a given amount of time than anyone else.
C. has a higher opportunity cost of producing pizzas than anyone else.
D. charges the lowest price for pizzas.
answer
can produce more pizzas in a given amount of time than anyone else.
question
Larry has a comparative advantage over his classmates in writing term papers if he:
A. can write term papers faster than his classmates.
B. has an absolute advantage in writing term papers.
C. always earns an A on his term papers.
D. has a lower opportunity cost of writing term papers than his classmates.
A. can write term papers faster than his classmates.
B. has an absolute advantage in writing term papers.
C. always earns an A on his term papers.
D. has a lower opportunity cost of writing term papers than his classmates.
answer
has a lower opportunity cost of writing term papers than his classmates.
question
Which of the following statements is true?
A. Absolute advantage implies comparative advantage.
B. Comparative advantage does not require absolute advantage.
C. Absolute advantage requires comparative advantage.
D. Comparative advantage requires absolute advantage.
A. Absolute advantage implies comparative advantage.
B. Comparative advantage does not require absolute advantage.
C. Absolute advantage requires comparative advantage.
D. Comparative advantage requires absolute advantage.
answer
Comparative advantage does not require absolute advantage.
question
Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie
and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which
of the following statements is correct?
A. Cathy should specialize in both pies and cakes.
B. There are no gains from specialization and trade.
C. Lewis should specialize in pies, and Cathy should specialize in cakes.
D. Cathy should specialize in pies, and Lewis should specialize in cakes
and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which
of the following statements is correct?
A. Cathy should specialize in both pies and cakes.
B. There are no gains from specialization and trade.
C. Lewis should specialize in pies, and Cathy should specialize in cakes.
D. Cathy should specialize in pies, and Lewis should specialize in cakes
answer
Cathy should specialize in pies, and Lewis should specialize in cakes
question
Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie
and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is
the opportunity cost to Cathy of making a cake?
A. 2/3 of a pie.
B. 1 pie.
C. 1.5 pies.
D. 1.33 pies.
and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. What is
the opportunity cost to Cathy of making a cake?
A. 2/3 of a pie.
B. 1 pie.
C. 1.5 pies.
D. 1.33 pies.
answer
1.5 pies.
question
The United States was unable to maintain its dominance in the production of televisions because:
A. the highly technical skills necessary to produce televisions are greater in other countries.
B. the raw materials necessary to build televisions became scarce in the United States.
C. the product designs evolved too rapidly for engineers in the United States to keep up.
D. automated techniques allowed production to be outsourced to countries with less-skilled workers.
A. the highly technical skills necessary to produce televisions are greater in other countries.
B. the raw materials necessary to build televisions became scarce in the United States.
C. the product designs evolved too rapidly for engineers in the United States to keep up.
D. automated techniques allowed production to be outsourced to countries with less-skilled workers.
answer
automated techniques allowed production to be outsourced to countries with less-skilled workers.
question
Points that lie outside the production possibilities curve are ______, and points that lie inside the production
possibilities curve are ______.
A. efficient; inefficient
B. inefficient; efficient
C. unattainable; attainable
D. attainable; unattainable
possibilities curve are ______.
A. efficient; inefficient
B. inefficient; efficient
C. unattainable; attainable
D. attainable; unattainable
answer
unattainable; attainable
question
Points that lie beneath the production possibilities curve are:
A. unattainable and inefficient
B. unattainable but efficient
C. attainable but inefficient
D. attainable and efficient
A. unattainable and inefficient
B. unattainable but efficient
C. attainable but inefficient
D. attainable and efficient
answer
attainable but inefficient
question
Any combination of goods that can be produced with currently available resources is an:
A. attainable point.
B. efficient point.
C. inefficient point.
D. attainable and efficient point
A. attainable point.
B. efficient point.
C. inefficient point.
D. attainable and efficient point
answer
attainable point.
question
Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that
producer:
A. cannot produce more of one good without giving up some of the other good.
B. can produce more of one good without producing less of the other good.
C. must be at an unattainable point on the production possibilities curve.
D. must be specializing in activities for which it has a comparative advantage.
producer:
A. cannot produce more of one good without giving up some of the other good.
B. can produce more of one good without producing less of the other good.
C. must be at an unattainable point on the production possibilities curve.
D. must be specializing in activities for which it has a comparative advantage.
answer
can produce more of one good without producing less of the other good.
question
If a given production combination is efficient, then it must be:
A. above the production possibilities curve.
B. on the production possibilities curve.
C. either an attainable or unattainable point.
D. below the production possibilities curve.
A. above the production possibilities curve.
B. on the production possibilities curve.
C. either an attainable or unattainable point.
D. below the production possibilities curve.
answer
on the production possibilities curve.
question
Assume point A on a linear production possibilities curve represents the combination of 12 coffees and 3
cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and
cappuccinos are on the horizontal axis. The absolute value of the slope of the production possibilities curve
between points A and B equals:
A. 6
B. 4
C. 3
D. 1/3
cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and
cappuccinos are on the horizontal axis. The absolute value of the slope of the production possibilities curve
between points A and B equals:
A. 6
B. 4
C. 3
D. 1/3
answer
3
question
The Principle of Increasing Opportunity Costs states that:
A. productive people do the hardest tasks first.
B. The Principle of Increasing
C. when increasing production, resources with the lowest opportunity costs should be used last.
D. opportunity costs increase when too little is produced.
A. productive people do the hardest tasks first.
B. The Principle of Increasing
C. when increasing production, resources with the lowest opportunity costs should be used last.
D. opportunity costs increase when too little is produced.
answer
The Principle of Increasing
question
Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause:
A. Nepal's production possibilities curve to shift outward faster than the U.S.'s.
B. The U.S.'s production possibilities curve to shift inward faster than Nepal's.
C. The U.S.'s production possibilities curve to shift outward faster than Nepal's.
D. Nepal's production possibilities curve to shift inward faster than the U.S.'s
A. Nepal's production possibilities curve to shift outward faster than the U.S.'s.
B. The U.S.'s production possibilities curve to shift inward faster than Nepal's.
C. The U.S.'s production possibilities curve to shift outward faster than Nepal's.
D. Nepal's production possibilities curve to shift inward faster than the U.S.'s
answer
The U.S.'s production possibilities curve to shift outward faster than Nepal's.
question
You are the Minister of Trade for a small island country with the above annual PPC:
You are negotiating a trade agreement with a neighboring island with the above annual PPC:
If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will:
A. accept their offer because you do not have the comparative advantage in fish.
B. refuse their offer because the opportunity cost to you of a coconut is more than 2 fish.
C. accept their offer because you do not have an absolute advantage in fish.
D. refuse their offer because the opportunity cost to you of a coconut is less than 2 fish.
You are negotiating a trade agreement with a neighboring island with the above annual PPC:
If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will:
A. accept their offer because you do not have the comparative advantage in fish.
B. refuse their offer because the opportunity cost to you of a coconut is more than 2 fish.
C. accept their offer because you do not have an absolute advantage in fish.
D. refuse their offer because the opportunity cost to you of a coconut is less than 2 fish.
answer
refuse their offer because the opportunity cost to you of a coconut is more than 2 fish.
question
As the differences in opportunity costs between the U.S. and its trading partners increase, the potential gains from
specialization and trade ______.
A. increase
B. decrease
C. stay the same
D. become unpredictable
specialization and trade ______.
A. increase
B. decrease
C. stay the same
D. become unpredictable
answer
increase
question
One concern regarding the North American Free Trade Agreement (NAFTA) was that it would lead:
A. the total value of goods and services produced by the United States to fall.
B. wages in Mexico to rise.
C. highly skilled workers in the United States to lose their jobs.
D. unskilled workers in the United States to lose their jobs.
A. the total value of goods and services produced by the United States to fall.
B. wages in Mexico to rise.
C. highly skilled workers in the United States to lose their jobs.
D. unskilled workers in the United States to lose their jobs.
answer
unskilled workers in the United States to lose their jobs.
question
According to the textbook, the evidence indicates that NAFTA has:
A. reduced the wages of skilled workers in the United States.
B. reduced the employment of unskilled workers in the United States significantly.
C. stopped illegal immigration from Mexico.
D. not significantly reduced the employment of unskilled workers in the United States
A. reduced the wages of skilled workers in the United States.
B. reduced the employment of unskilled workers in the United States significantly.
C. stopped illegal immigration from Mexico.
D. not significantly reduced the employment of unskilled workers in the United States
answer
not significantly reduced the employment of unskilled workers in the United States
question
According to the textbook, NAFTA was expected to help which country exploit its comparative advantage in the
production of goods made by unskilled labor?
A. Canada
B. Cuba
C. Mexico
D. The U.S.A
production of goods made by unskilled labor?
A. Canada
B. Cuba
C. Mexico
D. The U.S.A
answer
Mexico
question
Outsourcing is a term increasingly used to refer to the act of:
A. hiring illegal immigrants.
B. importing raw materials into the United States from other countries.
C. exporting final goods to other countries.
D. replacing relatively expensive American workers with low-wage workers overseas.
A. hiring illegal immigrants.
B. importing raw materials into the United States from other countries.
C. exporting final goods to other countries.
D. replacing relatively expensive American workers with low-wage workers overseas.
answer
replacing relatively expensive American workers with low-wage workers overseas.
question
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her:
marginal revenue.
equilibrium price.
reservation price.
producers surplus.
marginal revenue.
equilibrium price.
reservation price.
producers surplus.
answer
reservation price.
question
In a free market, if the price of a good is below the equilibrium price, then;
government needs to set a higher price.
suppliers, dissatisfied with growing inventories, will raise the price.
demanders, to acquire the good, will bid the price higher.
suppliers, dissatisfied with growing inventories, will lower the price.
government needs to set a higher price.
suppliers, dissatisfied with growing inventories, will raise the price.
demanders, to acquire the good, will bid the price higher.
suppliers, dissatisfied with growing inventories, will lower the price.
answer
demanders, to acquire the good, will bid the price higher.
question
Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas:
does not affect you.
causes companies to charge a lower price, thus benefiting you.
causes the price you pay for gas to increase.
does not change the price you pay, but reduces the quantity of gas supplied.
does not affect you.
causes companies to charge a lower price, thus benefiting you.
causes the price you pay for gas to increase.
does not change the price you pay, but reduces the quantity of gas supplied.
answer
causes the price you pay for gas to increase.
question
A regulated maximum price that is above the equilibrium price:
will lead to black markets.
will have no effect on the market.
will lead to excess supply in the market.
will lead to excess demand in the market.
will lead to black markets.
will have no effect on the market.
will lead to excess supply in the market.
will lead to excess demand in the market.
answer
will have no effect on the market.
question
A decrease in the price of pizza will cause a(n):
increase in demand.
increase in quantity demanded.
decrease in quantity demanded.
decrease in the number of consumers.
increase in demand.
increase in quantity demanded.
decrease in quantity demanded.
decrease in the number of consumers.
answer
increase in quantity demanded.
question
Which of the following would cause an increase in quantity supplied of wheat?
The price farmers receive for their wheat rises.
The price of fertilizer farmers' use in their fields decreases.
The price firms pay for liability insurance falls.
New, better technology for farming is introduced.
The price farmers receive for their wheat rises.
The price of fertilizer farmers' use in their fields decreases.
The price firms pay for liability insurance falls.
New, better technology for farming is introduced.
answer
The price farmers receive for their wheat rises.
question
As the price of flour (an input into the cookie production process) increases, firms that produce cookies will:
increase the supply of cookies.
increase the quantity of cookies supplied.
decrease the supply of cookies.
decrease the quantity of cookies supplied.
increase the supply of cookies.
increase the quantity of cookies supplied.
decrease the supply of cookies.
decrease the quantity of cookies supplied.
answer
decrease the supply of cookies.
question
When the supply of a good decreases, consumers will eventually:
decrease their demand.
increase their preferences for the good.
decrease their quantity demanded.
increase their quantity demanded.
decrease their demand.
increase their preferences for the good.
decrease their quantity demanded.
increase their quantity demanded.
answer
decrease their quantity demanded.
question
Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur?
The equilibrium price of sugar will rise.
The equilibrium quantity of sugar will rise.
The equilibrium price of sugar will fall.
The equilibrium quantity of sugar will fall.
The equilibrium price of sugar will rise.
The equilibrium quantity of sugar will rise.
The equilibrium price of sugar will fall.
The equilibrium quantity of sugar will fall.
answer
The equilibrium price of sugar will fall.
question
Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur?
The equilibrium price of bagels will rise.
The equilibrium quantity of bagels will rise.
The equilibrium price of bagels will fall.
The equilibrium quantity of bagels will fall.
The equilibrium price of bagels will rise.
The equilibrium quantity of bagels will rise.
The equilibrium price of bagels will fall.
The equilibrium quantity of bagels will fall.
answer
The equilibrium quantity of bagels will rise.
question
The situation described in the book as "Smart for One, Dumb for All" occurs when:
individuals, when acting rationally, benefit society as a whole.
individuals make better decisions when acting alone than when in groups.
individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.
a market is in equilibrium.
individuals, when acting rationally, benefit society as a whole.
individuals make better decisions when acting alone than when in groups.
individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.
a market is in equilibrium.
answer
individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.
question
Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be _______ because not all of the _________ are accounted for in the marketplace.
too high; benefits
too low; benefits
too high; costs
too low; costs
too high; benefits
too low; benefits
too high; costs
too low; costs
answer
too low; costs
question
Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______.
higher
more variable
the same
lower
higher
more variable
the same
lower
answer
lower
question
If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:
perfectly elastic.
elastic.
unit elastic.
inelastic.
perfectly elastic.
elastic.
unit elastic.
inelastic.
answer
elastic.
question
If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:
inelastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
inelastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
answer
perfectly inelastic.
question
To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.
elastic; unit
elastic; inelastic
inelastic; elastic
unit; inelastic
elastic; unit
elastic; inelastic
inelastic; elastic
unit; inelastic
answer
elastic; inelastic
question
The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:
pizza lovers act irrationally.
the demand for her large pizzas is elastic with respect to price.
there are few good substitutes for a large pizza.
the demand for her large pizzas is inelastic with respect to price.
pizza lovers act irrationally.
the demand for her large pizzas is elastic with respect to price.
there are few good substitutes for a large pizza.
the demand for her large pizzas is inelastic with respect to price.
answer
the demand for her large pizzas is elastic with respect to price.
question
If the demand for electricity is inelastic, then if the local utility wants to increase its total revenue, it should _______ its price.
lower
raise
not change
frequently change
lower
raise
not change
frequently change
answer
raise
question
If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.
equal to 1; inelastic
zero; inferior
negative; substitutes
negative; complements
equal to 1; inelastic
zero; inferior
negative; substitutes
negative; complements
answer
negative; complements
question
Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.
2; elastic
2; inelastic
4/3; elastic
3/4; inelastic
2; elastic
2; inelastic
4/3; elastic
3/4; inelastic
answer
3/4; inelastic
question
The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is
elastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
elastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
answer
perfectly inelastic.
question
The primary objective of most private firms is to:
maximize revenue.
maximize profit.
minimize cost.
maximize output.
maximize revenue.
maximize profit.
minimize cost.
maximize output.
answer
maximize profit.
question
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:
all of the kids advertise heavily.
each stand tries to get more customers by offering different varieties of lemonade and snacks.
each lemonade stand sells the same kind of lemonade.
some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.
all of the kids advertise heavily.
each stand tries to get more customers by offering different varieties of lemonade and snacks.
each lemonade stand sells the same kind of lemonade.
some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.
answer
each lemonade stand sells the same kind of lemonade.
question
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?
Everyone will start to charge 50 cents to maximize revenue.
A price war will break out, and all of the kids will lower their prices.
Each kid will keep his or her price at the original amount.
Eventually prices will equalize across all three lemonade stands.
Everyone will start to charge 50 cents to maximize revenue.
A price war will break out, and all of the kids will lower their prices.
Each kid will keep his or her price at the original amount.
Eventually prices will equalize across all three lemonade stands.
answer
Eventually prices will equalize across all three lemonade stands.
question
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
producing in the long run.
experiencing diminishing returns.
not using any fixed factors of production.
experiencing negative returns
producing in the long run.
experiencing diminishing returns.
not using any fixed factors of production.
experiencing negative returns
answer
experiencing diminishing returns.
question
Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:
shut down.
raise its price.
increase output.
continue to produce 1000 units.
shut down.
raise its price.
increase output.
continue to produce 1000 units.
answer
shut down.
question
When more firms enter an industry:
the amount produced by each of the new firms will be greater than the amount produced by each of the original firms.
the industry supply curve will shift left.
the amount produced by each of the new firms will be less than the amount produced by each of the original firms.
the industry supply curve will shift right.
the amount produced by each of the new firms will be greater than the amount produced by each of the original firms.
the industry supply curve will shift left.
the amount produced by each of the new firms will be less than the amount produced by each of the original firms.
the industry supply curve will shift right.
answer
the industry supply curve will shift right.
question
Assume that the production technology required to produce goods X and Y are very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:
intensify its production of good X.
shift into producing good Y.
anticipate a price increase for good X.
charge a higher price for good X.
intensify its production of good X.
shift into producing good Y.
anticipate a price increase for good X.
charge a higher price for good X.
answer
shift into producing good Y.
question
Which of the following would not be included in the calculation of accounting profit?
The wages paid to the company's workers.
The salary the owner could have earned working elsewhere.
The rent paid by the owner for the use of a building.
The medical insurance coverage for the company's workers.
The wages paid to the company's workers.
The salary the owner could have earned working elsewhere.
The rent paid by the owner for the use of a building.
The medical insurance coverage for the company's workers.
answer
The salary the owner could have earned working elsewhere.
question
A firm earns a normal profit when its:
accounting profit is positive.
economic profit is positive.
economic profit is zero.
accounting profit is zero.
accounting profit is positive.
economic profit is positive.
economic profit is zero.
accounting profit is zero.
answer
economic profit is zero.
question
In an industry with free entry and exit, positive economic profit:
indicates a market failure.
can never occur.
cannot be sustained indefinitely.
can be sustained indefinitely.
indicates a market failure.
can never occur.
cannot be sustained indefinitely.
can be sustained indefinitely.
answer
cannot be sustained indefinitely.
question
In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:
firms must earn positive economic profits in the long run.
firms will produce the quantity that minimizes average variable costs in the short run.
firms will produce the quantity that minimizes average total costs in the long run.
market demand is completely elastic.
firms must earn positive economic profits in the long run.
firms will produce the quantity that minimizes average variable costs in the short run.
firms will produce the quantity that minimizes average total costs in the long run.
market demand is completely elastic.
answer
firms will produce the quantity that minimizes average total costs in the long run.
question
One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:
firms will have to spend money on advertising.
positive economic profit is only possible in the short run.
firms will compete on the basis of better service rather than lower prices.
a long-run equilibrium cannot be achieved.
firms will have to spend money on advertising.
positive economic profit is only possible in the short run.
firms will compete on the basis of better service rather than lower prices.
a long-run equilibrium cannot be achieved.
answer
positive economic profit is only possible in the short run.
question
In a free market economy, the decisions of buyers and sellers are:
random.
motivated by custom and tradition.
coordinated by the government.
guided by prices.
random.
motivated by custom and tradition.
coordinated by the government.
guided by prices.
answer
guided by prices.
question
The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then:
there will be no transaction since $200 is greater than $100.
a transaction will occur, and the price paid for the factor of production will be $150.
a transaction will occur, and the price paid for the factor of production will be $200.
a transaction will occur, and the price paid for the factor of production will be $100.
there will be no transaction since $200 is greater than $100.
a transaction will occur, and the price paid for the factor of production will be $150.
a transaction will occur, and the price paid for the factor of production will be $200.
a transaction will occur, and the price paid for the factor of production will be $100.
answer
a transaction will occur, and the price paid for the factor of production will be $200.
question
Adam Smith believed that the individual pursuit of self-interest:
is impossible in a perfectly competitive market.
should usually be discouraged.
always leads to an efficient outcome.
often promotes the broader interests of society.
is impossible in a perfectly competitive market.
should usually be discouraged.
always leads to an efficient outcome.
often promotes the broader interests of society.
answer
often promotes the broader interests of society.
question
If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be:
$10
$7.50
$5
$6.25
$10
$7.50
$5
$6.25
answer
$5
question
The entire group of buyers and sellers of a particular good or service makes up:
only the demand curve.
only the supply curve.
a market.
the equilibrium.
only the demand curve.
only the supply curve.
a market.
the equilibrium.
answer
a market
question
Buyers and sellers of a particular good comprise the:
market for the good.
demand for the good.
supply for the good.
production possibilities curve for the good.
market for the good.
demand for the good.
supply for the good.
production possibilities curve for the good.
answer
market for the good.
question
The demand curve illustrates the fact that consumers:
tend to purchase more of a good as its price rises.
purchase name brand products more frequently than generic products.
tend to purchase more of a good as its price falls.
purchase more of a good as their incomes rise.
tend to purchase more of a good as its price rises.
purchase name brand products more frequently than generic products.
tend to purchase more of a good as its price falls.
purchase more of a good as their incomes rise.
answer
tend to purchase more of a good as its price falls.
question
Which of the following is NOT true of a demand curve?
It has negative slope.
It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
It relates the price of an item to the quantity demanded of that item.
It shows how an increase in price leads to an increase in quantity demanded of a good.
It has negative slope.
It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
It relates the price of an item to the quantity demanded of that item.
It shows how an increase in price leads to an increase in quantity demanded of a good.
answer
It shows how an increase in price leads to an increase in quantity demanded of a good.
question
As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:
the income effect.
the change in equilibrium.
the substitution effect.
a shift in the demand curve
the income effect.
the change in equilibrium.
the substitution effect.
a shift in the demand curve
answer
the substitution effect.
question
The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n):
substitution effect of a price change.
income effect of a price change.
decrease in buyer's reservation price.
increase in buyer's reservation price.
substitution effect of a price change.
income effect of a price change.
decrease in buyer's reservation price.
increase in buyer's reservation price.
answer
substitution effect of a price change.
question
When the price of an item increases, buyers tend to purchase less of that item:
solely because of the substitution effect.
solely because of the income effect.
because of both the substitution and the income effects.
only if the substitution effect and the income effect do not cancel out each other.
solely because of the substitution effect.
solely because of the income effect.
because of both the substitution and the income effects.
only if the substitution effect and the income effect do not cancel out each other.
answer
because of both the substitution and the income effects.
question
Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:
Gertie should not buy the jeans because they will be of lower quality than she expected.
Gertie should not buy the jeans because the price is not equal to her reservation price.
Gertie should buy the jeans because the price is less than her reservation price.
Gertie should buy the jeans because the price is more than her reservation price.
Gertie should not buy the jeans because they will be of lower quality than she expected.
Gertie should not buy the jeans because the price is not equal to her reservation price.
Gertie should buy the jeans because the price is less than her reservation price.
Gertie should buy the jeans because the price is more than her reservation price.
answer
Gertie should buy the jeans because the price is less than her reservation price.
question
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Moe's reservation price for a slice of pizza must be:
less than $1.75.
at least $1.75 but less than $2.
exactly $1.75.
exactly $2.00.
less than $1.75.
at least $1.75 but less than $2.
exactly $1.75.
exactly $2.00.
answer
at least $1.75 but less than $2.
question
Supply curves are generally _______ sloping because _______________.
downward; more consumers will buy the good if the price falls.
upward; of the principle of increasing opportunity costs.
downward; it is less expensive to mass-produce goods.
upward; of inflation.
downward; more consumers will buy the good if the price falls.
upward; of the principle of increasing opportunity costs.
downward; it is less expensive to mass-produce goods.
upward; of inflation.
answer
upward; of the principle of increasing opportunity costs.
question
Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that:
people don't like to live in your neighborhood anymore.
when housing prices rose, they started to exceed some of your neighbors' reservation prices.
the demand curve for housing in your town has shifted to the left while supply remained constant.
the supply curve for housing in your town has shifted to the right while demand has remained constant.
people don't like to live in your neighborhood anymore.
when housing prices rose, they started to exceed some of your neighbors' reservation prices.
the demand curve for housing in your town has shifted to the left while supply remained constant.
the supply curve for housing in your town has shifted to the right while demand has remained constant.
answer
when housing prices rose, they started to exceed some of your neighbors' reservation prices.
question
A seller's reservation price is generally equal to:
the buyer's reservation price.
the seller's opportunity cost.
the seller's marginal benefit.
the market price.
the buyer's reservation price.
the seller's opportunity cost.
the seller's marginal benefit.
the market price.
answer
the seller's opportunity cost.
question
A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because:
price will never change.
quantity will never change.
demand will never change.
at any price other than equilibrium, forces in the market move price towards the equilibrium.
price will never change.
quantity will never change.
demand will never change.
at any price other than equilibrium, forces in the market move price towards the equilibrium.
answer
at any price other than equilibrium, forces in the market move price towards the equilibrium.
question
Which of the following is NOT a characteristic of a market in equilibrium?
Excess supply is zero.
All consumers are able to purchase an amount equal to their quantity demanded.
Excess demand is zero.
The equilibrium price is stable, i.e., there is no pressure for it to change.
Excess supply is zero.
All consumers are able to purchase an amount equal to their quantity demanded.
Excess demand is zero.
The equilibrium price is stable, i.e., there is no pressure for it to change.
answer
All consumers are able to purchase an amount equal to their quantity demanded.
question
You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be?
At the original price, the quantity demanded was greater than the quantity supplied.
At the original price, there was a shortage of bakery products.
The original price was an equilibrium price because it was established in a free market.
At the original price, quantity supplied was greater than quantity demanded.
At the original price, the quantity demanded was greater than the quantity supplied.
At the original price, there was a shortage of bakery products.
The original price was an equilibrium price because it was established in a free market.
At the original price, quantity supplied was greater than quantity demanded.
answer
At the original price, quantity supplied was greater than quantity demanded.
question
If the market for sport utility vehicles has excess supply, then one can say that:
supply is greater than demand.
quantity supplied is greater than quantity demanded.
demand is greater than supply.
quantity demanded is greater than quantity supplied.
supply is greater than demand.
quantity supplied is greater than quantity demanded.
demand is greater than supply.
quantity demanded is greater than quantity supplied.
answer
quantity supplied is greater than quantity demanded.
question
Which of following is NOT true of an equilibrium price?
Consumers who are willing to pay the equilibrium price can acquire the good.
It measures the value of the last unit sold to consumers.
It is always a fair and just price.
Firms who are willing to accept the equilibrium price can sell what they produce.
Consumers who are willing to pay the equilibrium price can acquire the good.
It measures the value of the last unit sold to consumers.
It is always a fair and just price.
Firms who are willing to accept the equilibrium price can sell what they produce.
answer
It is always a fair and just price.
question
Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers (individuals who re-sell tickets at the event) were selling tickets in the same seating area as yours for $25. What is probably true?
There is excess demand for this concert at the Ticketmaster price.
The ticket you bought was under-priced for the market.
There is an excess supply of tickets for this concert at the Ticketmaster price.
The Ticketmaster price is an equilibrium price.
There is excess demand for this concert at the Ticketmaster price.
The ticket you bought was under-priced for the market.
There is an excess supply of tickets for this concert at the Ticketmaster price.
The Ticketmaster price is an equilibrium price.
answer
There is an excess supply of tickets for this concert at the Ticketmaster price.
question
Minimum wage laws are an example of:
mandated equilibrium wages.
a price ceiling.
a regulated price.
comparative advantage for unskilled workers.
mandated equilibrium wages.
a price ceiling.
a regulated price.
comparative advantage for unskilled workers.
answer
a regulated price.
question
According to the textbook, government price controls fail because:
they are not enforced.
legislation cannot repeal basic economic motives.
bureaucrats lack accurate market data.
firms ignore the restrictions.
they are not enforced.
legislation cannot repeal basic economic motives.
bureaucrats lack accurate market data.
firms ignore the restrictions.
answer
legislation cannot repeal basic economic motives.
question
A movement along a demand curve from one price-quantity combination to another is called:
a change in quantity demanded.
a shift in the demand curve.
a change in demand.
a change in quantity supplied.
a change in quantity demanded.
a shift in the demand curve.
a change in demand.
a change in quantity supplied.
answer
a change in quantity demanded.
question
If the demand for a good decreases as income decreases, it is a(n):
complementary good.
normal good.
inferior good.
substitute good.
complementary good.
normal good.
inferior good.
substitute good.
answer
normal good.
question
In the market for coffee, for many consumers:
tea is a substitute.
non-dairy creamer is a substitute.
cola beverages are complements.
coffee mugs are substitutes.
tea is a substitute.
non-dairy creamer is a substitute.
cola beverages are complements.
coffee mugs are substitutes.
answer
tea is a substitute.
question
Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases:
the demand for train tickets will increase.
the demand for rental cars will increase.
the demand for train tickets will decrease.
the demand for rental cars will decrease.
the demand for train tickets will increase.
the demand for rental cars will increase.
the demand for train tickets will decrease.
the demand for rental cars will decrease.
answer
the demand for rental cars will increase.
question
A decrease in the price of pizza will cause a(n):
increase in demand.
increase in quantity demanded.
decrease in quantity demanded.
decrease in the number of consumers.
increase in demand.
increase in quantity demanded.
decrease in quantity demanded.
decrease in the number of consumers.
answer
increase in quantity demanded.
question
Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:
the supply of doughnuts to decrease.
the quantity supplied of doughnuts to decrease.
the supply of doughnut-holes to increase.
the quantity supplied of doughnut-holes to increase.
the supply of doughnuts to decrease.
the quantity supplied of doughnuts to decrease.
the supply of doughnut-holes to increase.
the quantity supplied of doughnut-holes to increase.
answer
the quantity supplied of doughnuts to decrease.
question
For two goods X and Y to be classified as substitutes, it must be the case that:
X and Y are identical.
consumers tend to purchase both items.
when the price of X rises, the demand for Y decreases.
when the price of X rises, the demand for Y increases.
X and Y are identical.
consumers tend to purchase both items.
when the price of X rises, the demand for Y decreases.
when the price of X rises, the demand for Y increases.
answer
when the price of X rises, the demand for Y increases.
question
Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that:
peanut butter and jelly are complements.
peanut butter and jelly are substitutes.
peanut butter and jelly are normal goods.
peanut butter and jelly are inferior goods.
peanut butter and jelly are complements.
peanut butter and jelly are substitutes.
peanut butter and jelly are normal goods.
peanut butter and jelly are inferior goods.
answer
peanut butter and jelly are substitutes.
question
Suppose that two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:
quantity demanded of high-fiber foods will fall.
demand for high-fiber foods will decrease.
supply of high-fiber foods will increase.
price of high-fiber foods will rise.
quantity demanded of high-fiber foods will fall.
demand for high-fiber foods will decrease.
supply of high-fiber foods will increase.
price of high-fiber foods will rise.
answer
demand for high-fiber foods will decrease.
question
As the price of flour (an input into the cookie production process) increases, firms that produce cookies will:
increase the supply of cookies.
increase the quantity of cookies supplied.
decrease the supply of cookies.
decrease the quantity of cookies supplied.
increase the supply of cookies.
increase the quantity of cookies supplied.
decrease the supply of cookies.
decrease the quantity of cookies supplied.
answer
decrease the supply of cookies.
question
Suppose that the technology used to manufacture laptops has improved. The likely result would be:
an increase in supply of laptops.
an increase in quantity supplied of laptops.
a decrease in supply of laptops.
a decrease in quantity supplied of laptops.
an increase in supply of laptops.
an increase in quantity supplied of laptops.
a decrease in supply of laptops.
a decrease in quantity supplied of laptops.
answer
an increase in supply of laptops.
question
An increase in the demand for GM automobiles results in:
a lower equilibrium price for GM automobiles.
an increase in the quantity supplied of GM automobiles.
an increase in the supply of GM automobiles.
a lower equilibrium quantity of GM automobiles.
a lower equilibrium price for GM automobiles.
an increase in the quantity supplied of GM automobiles.
an increase in the supply of GM automobiles.
a lower equilibrium quantity of GM automobiles.
answer
an increase in the quantity supplied of GM automobiles.
question
Which of the following is NOT a determinant of demand for gasoline?
Consumers' incomes.
The price of diesel.
The price of automobiles.
The quantity of gasoline supplied.
Consumers' incomes.
The price of diesel.
The price of automobiles.
The quantity of gasoline supplied.
answer
The quantity of gasoline supplied.
question
When the supply of a good decreases, consumers will eventually:
decrease their demand.
increase their preferences for the good.
decrease their quantity demanded.
increase their quantity demanded.
decrease their demand.
increase their preferences for the good.
decrease their quantity demanded.
increase their quantity demanded.
answer
decrease their quantity demanded.
question
In general, when the supply curve shifts to the left and demand is constant then:
the market cannot reestablish an equilibrium.
the equilibrium price will fall.
the equilibrium quantity will rise.
the equilibrium price will rise.
the market cannot reestablish an equilibrium.
the equilibrium price will fall.
the equilibrium quantity will rise.
the equilibrium price will rise.
answer
the equilibrium price will rise.
question
Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is:
a decrease in demand for ketchup with no change in supply.
an increase in demand for ketchup with no change in supply.
an increase in demand for ketchup and a decrease in the supply of ketchup.
an increase in the supply of ketchup with no change in demand.
a decrease in demand for ketchup with no change in supply.
an increase in demand for ketchup with no change in supply.
an increase in demand for ketchup and a decrease in the supply of ketchup.
an increase in the supply of ketchup with no change in demand.
answer
a decrease in demand for ketchup with no change in supply.
question
Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur?
The equilibrium price of sugar will rise.
The equilibrium quantity of sugar will rise.
The equilibrium price of sugar will fall.
The equilibrium quantity of sugar will fall.
The equilibrium price of sugar will rise.
The equilibrium quantity of sugar will rise.
The equilibrium price of sugar will fall.
The equilibrium quantity of sugar will fall.
answer
The equilibrium price of sugar will fall.
question
The No Cash on the Table Principle asserts that:
in equilibrium, a few unexploited opportunities exist.
sometimes tips aren't picked up.
in disequilibrium, no opportunities exist.
in equilibrium, all opportunities have been exploited.
in equilibrium, a few unexploited opportunities exist.
sometimes tips aren't picked up.
in disequilibrium, no opportunities exist.
in equilibrium, all opportunities have been exploited.
answer
in equilibrium, all opportunities have been exploited.
question
According to the equilibrium principle:
unregulated markets tend to reach equilibrium prices and quantities without government regulation.
once a market has reached equilibrium, price will not change.
collective action cannot improve on individual action.
market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.
unregulated markets tend to reach equilibrium prices and quantities without government regulation.
once a market has reached equilibrium, price will not change.
collective action cannot improve on individual action.
market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.
answer
market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.
question
Efficiency occurs when:
a market is in equilibrium.
the socially optimal quantity of goods and services is being produced.
the individually rational quantity of goods and services is being produced.
the government does not interfere with market prices.
a market is in equilibrium.
the socially optimal quantity of goods and services is being produced.
the individually rational quantity of goods and services is being produced.
the government does not interfere with market prices.
answer
the socially optimal quantity of goods and services is being produced.
question
In a free market, if the price of a good is below the equilibrium price, then;
government needs to set a higher price.
suppliers, dissatisfied with growing inventories, will raise the price.
demanders, to acquire the good, will bid the price higher.
suppliers, dissatisfied with growing inventories, will lower the price.
government needs to set a higher price.
suppliers, dissatisfied with growing inventories, will raise the price.
demanders, to acquire the good, will bid the price higher.
suppliers, dissatisfied with growing inventories, will lower the price.
answer
demanders, to acquire the good, will bid the price higher.
question
The price elasticity of demand for a good measures the responsiveness of:
demand to a one percent change in price of that good.
price to a one percent change in the demand for that good.
quantity demanded to a one percent change in price of that good.
price to a one percent change in the quantity demanded of that good.
demand to a one percent change in price of that good.
price to a one percent change in the demand for that good.
quantity demanded to a one percent change in price of that good.
price to a one percent change in the quantity demanded of that good.
answer
quantity demanded to a one percent change in price of that good.
question
The price elasticity of demand is a measure of:
the change in quantity demanded of a good that results from a change in its price.
the change in price of a good that results from a change in its quantity demanded.
the demand for a good.
how consumers respond to excess demand.
the change in quantity demanded of a good that results from a change in its price.
the change in price of a good that results from a change in its quantity demanded.
the demand for a good.
how consumers respond to excess demand.
answer
the change in quantity demanded of a good that results from a change in its price.
question
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to:
0.05.
0.5.
2.
5.
0.05.
0.5.
2.
5.
answer
0.5
question
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
increase by 0.33%.
decrease by 0.33%.
increase by 3%.
decrease by 3%.
increase by 0.33%.
decrease by 0.33%.
increase by 3%.
decrease by 3%.
answer
decrease by 3%.
question
If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand?
½.
2.
10.
20.
½.
2.
10.
20.
answer
2
question
The demand for a good is unit elastic with respect to price if the price elasticity of demand is:
equal to one.
greater than one.
less than one.
greater than negative one.
equal to one.
greater than one.
less than one.
greater than negative one.
answer
equal to one.
question
When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:
elastic.
inelastic.
unit elastic.
perfectly elastic.
elastic.
inelastic.
unit elastic.
perfectly elastic.
answer
elastic.
question
If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:
elastic.
inelastic.
unit elastic.
perfectly elastic.
elastic.
inelastic.
unit elastic.
perfectly elastic.
answer
inelastic.
question
Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:
students do not have good nutritional information.
soda purchases represent a large fraction of students' budgets.
there are few other places to purchase soda on campus.
the price elasticity of demand for soda is equal to 1.
students do not have good nutritional information.
soda purchases represent a large fraction of students' budgets.
there are few other places to purchase soda on campus.
the price elasticity of demand for soda is equal to 1.
answer
there are few other places to purchase soda on campus.
question
Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.
less than
equal to
greater than
the reciprocal of
less than
equal to
greater than
the reciprocal of
answer
less than
question
All else equal, the price elasticity of demand for a good tends to be lower:
if the good has few close substitutes.
if the good represents a large share of a consumer's budget.
in the long run.
if the good has many close substitutes.
if the good has few close substitutes.
if the good represents a large share of a consumer's budget.
in the long run.
if the good has many close substitutes.
answer
if the good has few close substitutes.
question
Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be _______ than the demand for a specific brand of jeans.
more elastic
less elastic
more unit elastic
less inelastic
more elastic
less elastic
more unit elastic
less inelastic
answer
...
question
Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will:
increase because the Internet offers more substitutes.
decrease because the Internet offers more substitutes.
remain the same, but the quantity demanded will decrease as more people shop online.
remain the same, but the demand will decrease as more people shop online.
increase because the Internet offers more substitutes.
decrease because the Internet offers more substitutes.
remain the same, but the quantity demanded will decrease as more people shop online.
remain the same, but the demand will decrease as more people shop online.
answer
increase because the Internet offers more substitutes.
question
You would expect the price elasticity of demand for transportation generally to be:
the same as price elasticity of the demand for bus tickets.
greater than price elasticity of the demand for bus tickets.
less than price elasticity of the demand for bus tickets.
greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.
the same as price elasticity of the demand for bus tickets.
greater than price elasticity of the demand for bus tickets.
less than price elasticity of the demand for bus tickets.
greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.
answer
less than price elasticity of the demand for bus tickets.
question
Demand tends to be ______ in the short run than in the long run.
more elastic
less elastic
more variable
less important
more elastic
less elastic
more variable
less important
answer
...
question
The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that:
there are fewer substitutes for Tyson chicken than for chicken generally.
it takes a lot of time to adjust to a substitute brand of chicken.
the share of income spent on "chicken" is larger than spent on "Tyson Chicken".
there are fewer substitutes for chicken generally than for Tyson chicken.
there are fewer substitutes for Tyson chicken than for chicken generally.
it takes a lot of time to adjust to a substitute brand of chicken.
the share of income spent on "chicken" is larger than spent on "Tyson Chicken".
there are fewer substitutes for chicken generally than for Tyson chicken.
answer
there are fewer substitutes for chicken generally than for Tyson chicken.
question
Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________.
elastic; elastic
elastic; inelastic
inelastic; unit elastic
inelastic; elastic
elastic; elastic
elastic; inelastic
inelastic; unit elastic
inelastic; elastic
answer
...
question
Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?
Winter is longer than summer, and price elasticity is lower over longer time horizons.
Summer is longer than winter, and price elasticity is higher over longer time horizons.
Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.
People take more vacations in the summer and so use less water at home.
Winter is longer than summer, and price elasticity is lower over longer time horizons.
Summer is longer than winter, and price elasticity is higher over longer time horizons.
Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.
People take more vacations in the summer and so use less water at home.
answer
Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.
question
At the midpoint of a straight-line demand curve, the price elasticity of demand is:
greater than one.
less than one.
equal to one.
zero.
greater than one.
less than one.
equal to one.
zero.
answer
equal to one.
question
If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:
inelastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
inelastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
answer
perfectly inelastic.
question
If the slope of a demand curve is infinite, then the price elasticity of demand is:
zero.
infinite.
one.
equal to the price of the good.
zero.
infinite.
one.
equal to the price of the good.
answer
zero
question
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
0.
1.
infinity.
the quantity.
0.
1.
infinity.
the quantity.
answer
0.
question
If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will:
decrease the quantity demanded.
increase the quantity demanded.
lead the quantity demanded to fall to zero.
not change the quantity demanded.
decrease the quantity demanded.
increase the quantity demanded.
lead the quantity demanded to fall to zero.
not change the quantity demanded.
answer
not change the quantity demanded.
question
If demand is ______ with respect to price, a price increase will ______ total revenue.
elastic; increase
inelastic; increase
unit elastic; decrease
inelastic; decrease
elastic; increase
inelastic; increase
unit elastic; decrease
inelastic; decrease
answer
inelastic; increase
question
When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that:
the demand for Taylor's earrings at the original price was elastic.
there are many other boutiques competing with Taylor.
there was excess demand for earrings at the original price.
the demand for Taylor's earrings at the original price was inelastic.
the demand for Taylor's earrings at the original price was elastic.
there are many other boutiques competing with Taylor.
there was excess demand for earrings at the original price.
the demand for Taylor's earrings at the original price was inelastic.
answer
the demand for Taylor's earrings at the original price was inelastic.
question
Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:
elastic.
inelastic.
unit elastic.
perfectly inelastic.
elastic.
inelastic.
unit elastic.
perfectly inelastic.
answer
unit elastic.
question
The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:
price elasticity of demand.
income elasticity of demand.
price elasticity of supply.
cross-price elasticity of demand.
price elasticity of demand.
income elasticity of demand.
price elasticity of supply.
cross-price elasticity of demand.
answer
cross-price elasticity of demand.
question
If cross-price elasticity of demand between two goods is positive, the two goods are:
substitutes.
inferior.
complements.
normal.
substitutes.
inferior.
complements.
normal.
answer
substitutes.
question
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
substitutes.
normal goods.
complements.
inferior goods.
substitutes.
normal goods.
complements.
inferior goods.
answer
complements.
question
If the cross-price elasticity of demand between two goods is -1.2, then the two goods are:
inferior.
elastically demanded.
complements.
substitutes.
inferior.
elastically demanded.
complements.
substitutes.
answer
complements.
question
Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:
plane tickets are an inferior good.
the cross-price elasticity between plane tickets and train tickets is positive.
the cross-price elasticity between plane tickets and train tickets is negative.
plane tickets and train tickets are complements.
plane tickets are an inferior good.
the cross-price elasticity between plane tickets and train tickets is positive.
the cross-price elasticity between plane tickets and train tickets is negative.
plane tickets and train tickets are complements.
answer
the cross-price elasticity between plane tickets and train tickets is positive.
question
If most consumer goods and services are ______, then most income elasticities are ______.
normal; negative
inferior; positive
normal; greater than one
normal; positive
normal; negative
inferior; positive
normal; greater than one
normal; positive
answer
normal; positive
question
During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are:
substitutes.
normal goods.
complements.
inferior goods.
substitutes.
normal goods.
complements.
inferior goods.
answer
normal goods.
question
In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that:
there is excess demand for ramen noodles.
the equilibrium price for ramen noodles is too high.
college graduates have a high reservation price for ramen noodles.
ramen noodles are an inferior good.
there is excess demand for ramen noodles.
the equilibrium price for ramen noodles is too high.
college graduates have a high reservation price for ramen noodles.
ramen noodles are an inferior good.
answer
ramen noodles are an inferior good.
question
The percentage change in quantity supplied that results from a 1 percent change in price is known as the:
cross-price elasticity of supply.
slope of the supply curve.
price elasticity of supply.
cross-price elasticity of demand.
cross-price elasticity of supply.
slope of the supply curve.
price elasticity of supply.
cross-price elasticity of demand.
answer
price elasticity of supply.
question
The price elasticity of supply at a point is:
the percentage change in quantity supplied divided by the percentage change in price.
the percentage change in price divided by the percentage change in quantity supplied.
the change in quantity supplied divided by the change in price.
the change in price divided by the change in quantity supplied.
the percentage change in quantity supplied divided by the percentage change in price.
the percentage change in price divided by the percentage change in quantity supplied.
the change in quantity supplied divided by the change in price.
the change in price divided by the change in quantity supplied.
answer
the percentage change in quantity supplied divided by the percentage change in price.
question
Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.
2; elastic
2; inelastic
4/3; elastic
3/4; inelastic
2; elastic
2; inelastic
4/3; elastic
3/4; inelastic
answer
3/4; inelastic
question
It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will:
not affect the salaries of orthopedic surgeons.
have no impact on the number of people who decide to become orthopedic surgeons.
lead to a large increase in the number of orthopedic surgeons.
have little effect on the number of trained orthopedic surgeons.
not affect the salaries of orthopedic surgeons.
have no impact on the number of people who decide to become orthopedic surgeons.
lead to a large increase in the number of orthopedic surgeons.
have little effect on the number of trained orthopedic surgeons.
answer
have little effect on the number of trained orthopedic surgeons.
question
The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor) are also used to produce cookies, cakes, muffins, pies and many other goods. This suggests that:
the supply curve for cupcakes is downward sloping.
the elasticity of supply of cupcakes is relatively high.
the elasticity of supply of cupcakes is relatively low.
cupcakes are a normal good.
the supply curve for cupcakes is downward sloping.
the elasticity of supply of cupcakes is relatively high.
the elasticity of supply of cupcakes is relatively low.
cupcakes are a normal good.
answer
the elasticity of supply of cupcakes is relatively high.
question
The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is
elastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
elastic.
perfectly inelastic.
unit elastic.
perfectly elastic.
answer
perfectly inelastic.
question
Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones.
less price elastic
more price elastic
higher
lower
less price elastic
more price elastic
higher
lower
answer
more price elastic
question
Which of the following is not considered as a factor of production?
answer
Money
question
The best definition of economics is
answer
how choices are made under conditions of scarcity.
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