question
1. Natural gas is considered to be a nonrenewable energy source. Which of the following statements is correct?
a. Natural gas is an unlimited resource.
b. Natural gas is a scarce resource.
c. Natural gas is a nonscarce resource.
d. Natural gas is not a resource.
a. Natural gas is an unlimited resource.
b. Natural gas is a scarce resource.
c. Natural gas is a nonscarce resource.
d. Natural gas is not a resource.
answer
b. Natural gas is a scarce resource.
question
2. Which of the following is true?
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
b. Government policies usually improve upon both equality and efficiency.
c. As long as the economic pie continually gets larger, no one will have to go hungry.
d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
answer
a. Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
question
3. When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. both wealthy people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
a. efficiency is improved, but equality is not.
b. both wealthy people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
answer
c. people work less and produce fewer goods and services.
question
4. Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.
answer
c. is more equal but less efficient for society.
question
5. A donut shop sells fresh-baked donuts from 6 a.m. until 5 p.m. every day. The shop does not sell day-old donuts, so all unsold donuts are thrown away at 5 p.m. each day. The cost of making and selling a dozen donuts is $1; there are no costs associated with throwing donuts away. If the manager has seven dozen donuts left at 4 p.m. on a particular day, which of the following alternatives is most attractive?
a. Lower the price of the remaining donuts, even if the price falls below $1 per dozen.
b. Lower the price of the remaining donuts, but under no circumstances should the price fall below $1 per dozen.
c. Throw the donuts away and produce seven fewer dozen donuts tomorrow.
d. Starting tomorrow, lower the price on all donuts so they will all be sold earlier in the day.
a. Lower the price of the remaining donuts, even if the price falls below $1 per dozen.
b. Lower the price of the remaining donuts, but under no circumstances should the price fall below $1 per dozen.
c. Throw the donuts away and produce seven fewer dozen donuts tomorrow.
d. Starting tomorrow, lower the price on all donuts so they will all be sold earlier in the day.
answer
a. Lower the price of the remaining donuts, even if the price falls below $1 per dozen.
question
6. Nevaeh decides to spend four hours playing video games rather than attending her classes. Her opportunity cost of playing video games is
a. the value of the knowledge she would have received had she attended her classes.
b. the $40 she could have earned if she had worked at her job for those four hours.
c. the value of her time playing video games minus the value of attending classes.
d. nothing, since she valued playing video games more than attending classes.
a. the value of the knowledge she would have received had she attended her classes.
b. the $40 she could have earned if she had worked at her job for those four hours.
c. the value of her time playing video games minus the value of attending classes.
d. nothing, since she valued playing video games more than attending classes.
answer
a. the value of the knowledge she would have received had she attended her classes.
question
7. Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor,
a. only Dale is made better off by trade.
b. only Terrence is made better off by trade.
c. both Dale and Terrence are made better off by trade.
d. neither Dale nor Terrence are made better off by trade.
a. only Dale is made better off by trade.
b. only Terrence is made better off by trade.
c. both Dale and Terrence are made better off by trade.
d. neither Dale nor Terrence are made better off by trade.
answer
c. both Dale and Terrence are made better off by trade.
question
8. Trade between countries tends to
a. reduce both competition and specialization.
b. reduce competition and increase specialization.
c. increase competition and reduce specialization.
d. increase both competition and specialization
a. reduce both competition and specialization.
b. reduce competition and increase specialization.
c. increase competition and reduce specialization.
d. increase both competition and specialization
answer
d. increase both competition and specialization
question
9. The basic principles of economics suggest that
a. markets are seldom, if ever, a good way to organize economic activity.
b. government should become involved in markets when trade between countries is involved.
c. government should become involved in markets when those markets fail to produce efficient or fair outcomes.
d. government should never become involved in markets.
a. markets are seldom, if ever, a good way to organize economic activity.
b. government should become involved in markets when trade between countries is involved.
c. government should become involved in markets when those markets fail to produce efficient or fair outcomes.
d. government should never become involved in markets.
answer
c. government should become involved in markets when those markets fail to produce efficient or fair outcomes.
question
10. The term used to describe a situation in which markets do not allocate resources efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.
answer
b. market failure.
question
11. Which of these activities will most likely impose an external cost?
a. An athlete works out at a gym.
b. A postal worker smokes a cigarette in a crowded break room.
c. A young father pushes his baby in a stroller.
d. A construction worker eats a hotdog during her lunch break.
a. An athlete works out at a gym.
b. A postal worker smokes a cigarette in a crowded break room.
c. A young father pushes his baby in a stroller.
d. A construction worker eats a hotdog during her lunch break.
answer
b. A postal worker smokes a cigarette in a crowded break room.
question
12. Market power refers to the
a. power of a single person or small group to influence market prices.
b. ability of a person or small group to successfully market new products.
c. power of the government to regulate a market.
d. importance of a certain market in relation to the overall economy.
a. power of a single person or small group to influence market prices.
b. ability of a person or small group to successfully market new products.
c. power of the government to regulate a market.
d. importance of a certain market in relation to the overall economy.
answer
a. power of a single person or small group to influence market prices.
question
13. Which of the following is an important cause of inflation in an economy?
a. Increases in productivity in the economy
b. The influence of positive externalities on the economy
c. Lack of property rights in the economy
d. Growth in the quantity of money in the economy
a. Increases in productivity in the economy
b. The influence of positive externalities on the economy
c. Lack of property rights in the economy
d. Growth in the quantity of money in the economy
answer
d. Growth in the quantity of money in the economy
question
14. Economists make assumptions to
a. minimize the number of experiments that yield no useful data.
b. develop models when the scientific method cannot be used.
c. provide issues for political discussion.
d. simplify the complex world and make it easier to understand.
a. minimize the number of experiments that yield no useful data.
b. develop models when the scientific method cannot be used.
c. provide issues for political discussion.
d. simplify the complex world and make it easier to understand.
answer
d. simplify the complex world and make it easier to understand.
question
15. A circular-flow diagram is a model that
a. helps to explain how consumers and the government interact with one another.
b. explains how countries trade with each other.
c. incorporates all aspects of the real economy.
d. helps to explain how the economy is organized.
a. helps to explain how consumers and the government interact with one another.
b. explains how countries trade with each other.
c. incorporates all aspects of the real economy.
d. helps to explain how the economy is organized.
answer
d. helps to explain how the economy is organized.
question
16. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
a. A landowner leases land to a farmer.
b. A farmer hires a teenager to help with harvest.
c. Amari receives a salary for his work as an analyst for an investment firm.
d. Nia buys two business suits to wear to her job as a Chief Information Officer.
a. A landowner leases land to a farmer.
b. A farmer hires a teenager to help with harvest.
c. Amari receives a salary for his work as an analyst for an investment firm.
d. Nia buys two business suits to wear to her job as a Chief Information Officer.
answer
d. Nia buys two business suits to wear to her job as a Chief Information Officer.
question
17. An economy's production of two goods is efficient if
a. all members of society consume equal portions of the goods.
b. the economy is producing at a point on or inside the production possibilities frontier.
c. it is impossible to produce more of one good without producing less of the other.
d. it is possible to produce more of one good without producing less of another good.
a. all members of society consume equal portions of the goods.
b. the economy is producing at a point on or inside the production possibilities frontier.
c. it is impossible to produce more of one good without producing less of the other.
d. it is possible to produce more of one good without producing less of another good.
answer
c. it is impossible to produce more of one good without producing less of the other.
question
18. Microeconomics is the study of
a. how money affects the economy.
b. how individual households and firms make decisions.
c. how government affects the economy.
d. how the economy as a whole works.
a. how money affects the economy.
b. how individual households and firms make decisions.
c. how government affects the economy.
d. how the economy as a whole works.
answer
b. how individual households and firms make decisions.
question
19. Normative statements are
a. descriptive.
b. claims about how the world is.
c. prescriptive.
d. claims about how variables in the economy normally behave.
a. descriptive.
b. claims about how the world is.
c. prescriptive.
d. claims about how variables in the economy normally behave.
answer
c. prescriptive.
question
20. Economists sometimes give conflicting advice because
a. graduate students in economics are encouraged to argue with each other.
b. economists have different values and scientific judgments.
c. economists acting as scientists do not like to agree with economists acting as policy advisers.
d. economics is more of a belief system than a science.
a. graduate students in economics are encouraged to argue with each other.
b. economists have different values and scientific judgments.
c. economists acting as scientists do not like to agree with economists acting as policy advisers.
d. economics is more of a belief system than a science.
answer
b. economists have different values and scientific judgments.
question
21. Maylin wants to create a graph containing the prices of concert tickets and the corresponding quantities of concert tickets demanded by customers. She should use a
a. pie chart.
b. bar graph.
c. time-series graph.
d. coordinate system.
a. pie chart.
b. bar graph.
c. time-series graph.
d. coordinate system.
answer
d. coordinate system.
question
22. If a seller in a competitive market chooses to charge more than the going price, then
a. the sellers' profits must increase.
b. the owners of the raw materials used in production would raise the prices for the raw materials.
c. other sellers would also raise their prices.
d. buyers will make purchases from other sellers.
a. the sellers' profits must increase.
b. the owners of the raw materials used in production would raise the prices for the raw materials.
c. other sellers would also raise their prices.
d. buyers will make purchases from other sellers.
answer
d. buyers will make purchases from other sellers.
question
23. The quantity demanded of a good is the amount that buyers are
a. willing to purchase.
b. willing and able to purchase.
c. willing, able, and need to purchase.
d. able to purchase.
a. willing to purchase.
b. willing and able to purchase.
c. willing, able, and need to purchase.
d. able to purchase.
answer
b. willing and able to purchase.
question
24. A demand schedule is a table that shows the relationship between
a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.
a. quantity demanded and quantity supplied.
b. income and quantity demanded.
c. price and quantity demanded.
d. price and income.
answer
c. price and quantity demanded.
question
25. The market demand curve
a. shows the relationship between price and the number of buyers in a market.
b. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the good.
c. is found by vertically adding the individual demand curves.
d. shows how the total quantity demanded of a good varies as price varies.
a. shows the relationship between price and the number of buyers in a market.
b. represents the sum of the prices that all the buyers are willing to pay for a given quantity of the good.
c. is found by vertically adding the individual demand curves.
d. shows how the total quantity demanded of a good varies as price varies.
answer
d. shows how the total quantity demanded of a good varies as price varies.
question
26. Pizza is a normal good if the demand
a. for pizza rises when income rises.
b. for pizza rises when the price of pizza falls.
c. curve for pizza slopes upward.
d. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes.
a. for pizza rises when income rises.
b. for pizza rises when the price of pizza falls.
c. curve for pizza slopes upward.
d. curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are substitutes.
answer
a. for pizza rises when income rises.
question
27. Soup is an inferior good if the demand
a. for soup falls when the price of a substitute for soup rises.
b. for soup rises when the price of soup falls.
c. curve for soup slopes upward.
d. for soup falls when income rises.
a. for soup falls when the price of a substitute for soup rises.
b. for soup rises when the price of soup falls.
c. curve for soup slopes upward.
d. for soup falls when income rises.
answer
d. for soup falls when income rises.
question
28. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
answer
a. decreases the demand for the other good.
question
29. Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
answer
d. substitute goods.
question
30. If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.
answer
b. demand will decrease.
question
31. A supply schedule is a table that shows the relationship between
a. price and quantity supplied.
b. input costs and quantity supplied.
c. quantity demanded and quantity supplied.
d. profit and quantity supplied.
a. price and quantity supplied.
b. input costs and quantity supplied.
c. quantity demanded and quantity supplied.
d. profit and quantity supplied.
answer
a. price and quantity supplied.
question
32. The market supply curve
a. shows how supply changes when consumer income changes.
b. is determined by finding the average quantity supplied by sellers at each possible price.
c. represents the sum of the prices that all the sellers are willing to accept for a given quantity of the good.
d. shows how the total quantity supplied of a good varies as the price of that good varies.
a. shows how supply changes when consumer income changes.
b. is determined by finding the average quantity supplied by sellers at each possible price.
c. represents the sum of the prices that all the sellers are willing to accept for a given quantity of the good.
d. shows how the total quantity supplied of a good varies as the price of that good varies.
answer
d. shows how the total quantity supplied of a good varies as the price of that good varies.
question
33. Equilibrium quantity must decrease when
a. demand increases and supply decreases.
b. demand decreases and supply increases.
c. demand increases and supply does not change.
d. both demand and supply decrease.
a. demand increases and supply decreases.
b. demand decreases and supply increases.
c. demand increases and supply does not change.
d. both demand and supply decrease.
answer
d. both demand and supply decrease.
question
34. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
answer
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
question
35. Suppose the United States had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage?
a. The government would provide tax incentives to encourage people to become farmers.
b. The government would subsidize the production of food.
c. The prices of food and the wages of farmers would adjust.
d. There are no market mechanisms to remove the shortage.
a. The government would provide tax incentives to encourage people to become farmers.
b. The government would subsidize the production of food.
c. The prices of food and the wages of farmers would adjust.
d. There are no market mechanisms to remove the shortage.
answer
c. The prices of food and the wages of farmers would adjust.
question
36. Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
answer
c. the quantity demanded changes only slightly when the price of the good changes.
question
37. If the price of milk rises, when is the price elasticity of demand likely to be the highest?
a. Immediately after the price increase
b. One month after the price increase
c. Three months after the price increase
d. One year after the price increase
a. Immediately after the price increase
b. One month after the price increase
c. Three months after the price increase
d. One year after the price increase
answer
d. One year after the price increase
question
38. Suppose the price of a bag of frozen chicken nuggets decreases from $6.60 to $6.50 and, as a result, the quantity of bags demanded increases from 600 to 620. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
a. 0.47.
b. 0.03.
c. 2.15.
d. 0.02.
a. 0.47.
b. 0.03.
c. 2.15.
d. 0.02.
answer
c. 2.15.
question
39. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
answer
b. flatter the demand curve will be.
question
40. When large changes in price lead to no changes in quantity demanded, demand is perfectly
a. inelastic, and the demand curve will be vertical.
b. inelastic, and the demand curve will be horizontal.
c. elastic, and the demand curve will be vertical.
d. elastic, and the demand curve will be horizontal.
a. inelastic, and the demand curve will be vertical.
b. inelastic, and the demand curve will be horizontal.
c. elastic, and the demand curve will be vertical.
d. elastic, and the demand curve will be horizontal.
answer
a. inelastic, and the demand curve will be vertical.
question
41. Income elasticity of demand measures how
a. the quantity demanded changes as consumer income changes.
b. consumer purchasing power is affected by a change in the price of a good.
c. the price of a good is affected when there is a change in consumer income.
d. many units of a good a consumer can buy given a certain income level.
a. the quantity demanded changes as consumer income changes.
b. consumer purchasing power is affected by a change in the price of a good.
c. the price of a good is affected when there is a change in consumer income.
d. many units of a good a consumer can buy given a certain income level.
answer
a. the quantity demanded changes as consumer income changes.
question
42. Cross-price elasticity of demand measures how
a. the price of one good changes in response to a change in the price of another good.
b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c. the quantity demanded of one good changes in response to a change in the price of another good.
d. strongly normal or inferior a good is.
a. the price of one good changes in response to a change in the price of another good.
b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c. the quantity demanded of one good changes in response to a change in the price of another good.
d. strongly normal or inferior a good is.
answer
c. the quantity demanded of one good changes in response to a change in the price of another good.
question
43. Suppose that when the price of good X increases from $610 to $710, the quantity demanded of good Y decreases from 51 to 15. Using the midpoint method, the cross-price elasticity of demand is about
a. 7.20, and X and Y are substitutes.
b. -0.14, and X and Y are complements.
c. 0.14, and X and Y are substitutes.
d. -7.20, and X and Y are complements.
a. 7.20, and X and Y are substitutes.
b. -0.14, and X and Y are complements.
c. 0.14, and X and Y are substitutes.
d. -7.20, and X and Y are complements.
answer
d. -7.20, and X and Y are complements.
question
44. If the cross-price elasticity of two goods is positive, then the two goods are
a. complements.
b. substitutes.
c. normal goods.
d. inferior goods.
a. complements.
b. substitutes.
c. normal goods.
d. inferior goods.
answer
b. substitutes
question
45. If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
a. higher prices and higher total revenue from marijuana sales.
b. higher prices but lower total revenue from marijuana sales.
c. the same price and higher total revenue from marijuana sales.
d. the same price but lower total revenue from marijuana sales.
a. higher prices and higher total revenue from marijuana sales.
b. higher prices but lower total revenue from marijuana sales.
c. the same price and higher total revenue from marijuana sales.
d. the same price but lower total revenue from marijuana sales.
answer
c. the same price and higher total revenue from marijuana sales.
question
46. Which of the following statements is not correct?
a. Advocates for drug-interdiction policies that reduce the supply of illegal drugs argue that the demand for illegal drugs may be more responsive in the long run than in the short run.
b. The demand for illegal drugs is price inelastic.
c. Drug interdiction efforts that reduce the supply of illegal drugs may increase drug-related crimes.
d. The quantity of illegal drugs demanded is very responsive to changes in price.
a. Advocates for drug-interdiction policies that reduce the supply of illegal drugs argue that the demand for illegal drugs may be more responsive in the long run than in the short run.
b. The demand for illegal drugs is price inelastic.
c. Drug interdiction efforts that reduce the supply of illegal drugs may increase drug-related crimes.
d. The quantity of illegal drugs demanded is very responsive to changes in price.
answer
d. The quantity of illegal drugs demanded is very responsive to changes in price.
question
47. Rent-control laws dictate
a. the exact rent that landlords must charge tenants.
b. only a maximum rent that landlords may charge tenants.
c. only a minimum rent that landlords may charge tenants.
d. both a minimum rent and a maximum rent that landlords may charge tenants.
a. the exact rent that landlords must charge tenants.
b. only a maximum rent that landlords may charge tenants.
c. only a minimum rent that landlords may charge tenants.
d. both a minimum rent and a maximum rent that landlords may charge tenants.
answer
b. only a maximum rent that landlords may charge tenants.
question
48. Minimum-wage laws dictate
a. the exact wage that firms must pay workers.
b. only a maximum wage that firms may pay workers.
c. only a minimum wage that firms may pay workers.
d. both a minimum wage and a maximum wage that firms may pay workers.
a. the exact wage that firms must pay workers.
b. only a maximum wage that firms may pay workers.
c. only a minimum wage that firms may pay workers.
d. both a minimum wage and a maximum wage that firms may pay workers.
answer
c. only a minimum wage that firms may pay workers.
question
49. A legal minimum on the price at which a good can be sold is called a
a. price subsidy.
b. price floor.
c. tax.
d. price ceiling.
a. price subsidy.
b. price floor.
c. tax.
d. price ceiling.
answer
b. price floor.
question
50. A surplus results when a
a. nonbinding price floor is imposed on a market.
b. nonbinding price floor is removed from a market.
c. binding price floor is imposed on a market.
d. binding price floor is removed from a market.
a. nonbinding price floor is imposed on a market.
b. nonbinding price floor is removed from a market.
c. binding price floor is imposed on a market.
d. binding price floor is removed from a market.
answer
c. binding price floor is imposed on a market.
question
51. Consider the market for gasoline. Buyers
a. and sellers would lobby for a price ceiling.
b. and sellers would lobby for a price floor.
c. would lobby for a price ceiling, whereas sellers would lobby for a price floor.
d. would lobby for a price floor, whereas sellers would lobby for a price ceiling.
a. and sellers would lobby for a price ceiling.
b. and sellers would lobby for a price floor.
c. would lobby for a price ceiling, whereas sellers would lobby for a price floor.
d. would lobby for a price floor, whereas sellers would lobby for a price ceiling.
answer
c. would lobby for a price ceiling, whereas sellers would lobby for a price floor.
question
52. When OPEC raised the price of crude oil in the 1970s, it caused the United States'
a. nonbinding price floor on gasoline to become binding.
b. binding price floor on gasoline to become nonbinding.
c. nonbinding price ceiling on gasoline to become binding.
d. binding price ceiling on gasoline to become nonbinding.
a. nonbinding price floor on gasoline to become binding.
b. binding price floor on gasoline to become nonbinding.
c. nonbinding price ceiling on gasoline to become binding.
d. binding price ceiling on gasoline to become nonbinding.
answer
c. nonbinding price ceiling on gasoline to become binding.
question
53. The goal of rent control is to
a. facilitate controlled economic experiments in urban areas.
b. help landlords by assuring them a low vacancy rate for their apartments.
c. help the poor by assuring them an adequate supply of apartments. d. help the poor by making housing more affordable.
a. facilitate controlled economic experiments in urban areas.
b. help landlords by assuring them a low vacancy rate for their apartments.
c. help the poor by assuring them an adequate supply of apartments. d. help the poor by making housing more affordable.
answer
d. help the poor by making housing more affordable.
question
54. When a tax is placed on the sellers of a product, buyers pay
a. more, and sellers receive more than they did before the tax.
b. more, and sellers receive less than they did before the tax.
c. less, and sellers receive more than they did before the tax.
d. less, and sellers receive less than they did before the tax.
a. more, and sellers receive more than they did before the tax.
b. more, and sellers receive less than they did before the tax.
c. less, and sellers receive more than they did before the tax.
d. less, and sellers receive less than they did before the tax.
answer
b. more, and sellers receive less than they did before the tax.
question
55. Which of the following is not correct?
a. Taxes levied on sellers and taxes levied on buyers are not equivalent.
b. A tax places a wedge between the price that buyers pay and the price that sellers receive.
c. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers.
d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.
a. Taxes levied on sellers and taxes levied on buyers are not equivalent.
b. A tax places a wedge between the price that buyers pay and the price that sellers receive.
c. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers.
d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.
answer
a. Taxes levied on sellers and taxes levied on buyers are not equivalent.
question
56. You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct?
a. You will owe $300 per paycheck to pay the FICA tax for the remainder of the fiscal year regardless of your wages.
b. Your employer is required by law to pay $150 to match half the $300 deducted from your check.
c. This type of tax is an example of a sales tax.
d. The $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee.
a. You will owe $300 per paycheck to pay the FICA tax for the remainder of the fiscal year regardless of your wages.
b. Your employer is required by law to pay $150 to match half the $300 deducted from your check.
c. This type of tax is an example of a sales tax.
d. The $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee.
answer
d. The $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee.
question
57. The burden of a luxury tax usually falls
a. more on the rich than on the middle class.
b. more on the poor than on the rich.
c. more on the middle class than on the rich.
d. equally on the rich, the middle class, and the poor.
a. more on the rich than on the middle class.
b. more on the poor than on the rich.
c. more on the middle class than on the rich.
d. equally on the rich, the middle class, and the poor.
answer
c. more on the middle class than on the rich.
question
58. The maximum price that a buyer will pay for a good is called
a. consumer surplus.
b. producer surplus.
c. efficiency.
d. willingness to pay.
a. consumer surplus.
b. producer surplus.
c. efficiency.
d. willingness to pay.
answer
d. willingness to pay.
question
59. A drought in Spain destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes
a. increases, and the consumer surplus in the market for red wine increases.
b. increases, and the consumer surplus in the market for red wine decreases.
c. decreases, and the consumer surplus in the market for red wine increases.
d. decreases, and the consumer surplus in the market for red wine decreases.
a. increases, and the consumer surplus in the market for red wine increases.
b. increases, and the consumer surplus in the market for red wine decreases.
c. decreases, and the consumer surplus in the market for red wine increases.
d. decreases, and the consumer surplus in the market for red wine decreases.
answer
d. decreases, and the consumer surplus in the market for red wine decreases.
question
60. When the demand for a good increases and the supply of the good remains unchanged, consumer surplus
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
answer
d. may increase, decrease, or remain unchanged.
question
61. Which of the following is true when the price of a good or service falls?
a. Buyers who were already buying the good or service are worse off.
b. More buyers enter the market.
c. The total consumer surplus in the market decreases.
d. The total value of purchases before and after the price change is the same.
a. Buyers who were already buying the good or service are worse off.
b. More buyers enter the market.
c. The total consumer surplus in the market decreases.
d. The total value of purchases before and after the price change is the same.
answer
b. More buyers enter the market.
question
62. A seller's opportunity cost measures the
a. value of everything she must give up to produce a good.
b. amount she is paid for a good minus her cost of providing it.
c. consumer surplus.
d. out-of-pocket expenses to produce a good but not the value of her time.
a. value of everything she must give up to produce a good.
b. amount she is paid for a good minus her cost of providing it.
c. consumer surplus.
d. out-of-pocket expenses to produce a good but not the value of her time.
answer
a. value of everything she must give up to produce a good.
question
63. Producer surplus directly measures
a. the well-being of society as a whole.
b. the well-being of buyers and sellers.
c. the well-being of sellers.
d. sellers' willingness to sell.
a. the well-being of society as a whole.
b. the well-being of buyers and sellers.
c. the well-being of sellers.
d. sellers' willingness to sell.
answer
c. the well-being of sellers.
question
64. The distinction between efficiency and equality can be described as follows:
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
answer
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
question
65. A simultaneous increase in both the demand for tablets and the supply of tablets would imply that
a. both the value of tablets to consumers and the cost of producing tablets has increased.
b. both the value of tablets to consumers and the cost of producing tablets has decreased.
c. the value of tablets to consumers has decreased, and the cost of producing tablets has increased.
d. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.
a. both the value of tablets to consumers and the cost of producing tablets has increased.
b. both the value of tablets to consumers and the cost of producing tablets has decreased.
c. the value of tablets to consumers has decreased, and the cost of producing tablets has increased.
d. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.
answer
d. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.
question
66. Efficiency in a market is achieved when
a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs.
b. the sum of producer surplus and consumer surplus is maximized.
c. all firms are producing the good at the same low cost per unit.
d. no buyer is willing to pay more than the equilibrium price for any unit of the good.
a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs.
b. the sum of producer surplus and consumer surplus is maximized.
c. all firms are producing the good at the same low cost per unit.
d. no buyer is willing to pay more than the equilibrium price for any unit of the good.
answer
b. the sum of producer surplus and consumer surplus is maximized.
question
67. A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
a. maximizes both the total revenue for firms and the quantity supplied of the product.
b. maximizes the combined welfare of buyers and sellers.
c. minimizes costs and maximizes output.
d. minimizes the level of welfare payments.
a. maximizes both the total revenue for firms and the quantity supplied of the product.
b. maximizes the combined welfare of buyers and sellers.
c. minimizes costs and maximizes output.
d. minimizes the level of welfare payments.
answer
b. maximizes the combined welfare of buyers and sellers.
question
68. The distinction between efficiency and equality can be described as follows:
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
answer
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
question
69. The production possibilities frontier illustrates
a. the combinations of output that an economy should produce.
b. the combinations of output that an economy should consume.
c. the combinations of output that an economy can produce.
d. the combinations of output that an economy wants to produce.
a. the combinations of output that an economy should produce.
b. the combinations of output that an economy should consume.
c. the combinations of output that an economy can produce.
d. the combinations of output that an economy wants to produce.
answer
c. the combinations of output that an economy can produce.
question
70. Which of the following is not a characteristic of a perfectly competitive market?
a. Different sellers sell identical products.
b. There are many buyers and sellers.
c. Sellers must accept the price the market determines.
d. There is no free entry or exit.
a. Different sellers sell identical products.
b. There are many buyers and sellers.
c. Sellers must accept the price the market determines.
d. There is no free entry or exit.
answer
d. There is no free entry or exit.
question
1. A student might describe information about the costs of production as
a. dry and technical.
b. boring.
c. crucial to understanding firms and market structures.
d. All of the above could be correct.
a. dry and technical.
b. boring.
c. crucial to understanding firms and market structures.
d. All of the above could be correct.
answer
d. All of the above could be correct.
question
2. Economists in the field of industrial organization study how
a. central banking policies affect financial markets.
b. firms' demand for labor and individuals' supply of labor affect resource markets.
c. firms' decisions about prices and quantities depend on market conditions.
d. externalities and public goods affect the environment.
a. central banking policies affect financial markets.
b. firms' demand for labor and individuals' supply of labor affect resource markets.
c. firms' decisions about prices and quantities depend on market conditions.
d. externalities and public goods affect the environment.
answer
c. firms' decisions about prices and quantities depend on market conditions.
question
3. Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
answer
c. (iii) only
question
4. An entrepreneur's motivation to start a business arises from
a. an innate love for the type of business that he or she starts.
b. a desire to earn a profit.
c. an altruistic desire to provide the world with a good product.
d. All of the above could be correct.
a. an innate love for the type of business that he or she starts.
b. a desire to earn a profit.
c. an altruistic desire to provide the world with a good product.
d. All of the above could be correct.
answer
d. All of the above could be correct.
question
5. Total revenue equals
a. price x quantity.
b. price/quantity.
c. (price x quantity) - total cost.
d. output - input.
a. price x quantity.
b. price/quantity.
c. (price x quantity) - total cost.
d. output - input.
answer
a. price x quantity.
question
6. If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are
a. $100.
b. $199.50.
c. $200.
d. $400.
a. $100.
b. $199.50.
c. $200.
d. $400.
answer
a. $100.
question
7. A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at a price of $7 per gallon. For last year, the firm's
a. total revenue was $3.5 million.
b. economic profit was $3.5 million.
c. accounting profit was $3.5 million.
d. explicit costs were $3.5 million.
a. total revenue was $3.5 million.
b. economic profit was $3.5 million.
c. accounting profit was $3.5 million.
d. explicit costs were $3.5 million.
answer
a. total revenue was $3.5 million.
question
8. Profit is defined as
a. net revenue minus depreciation.
b. total revenue minus total cost.
c. average revenue minus average total cost.
d. marginal revenue minus marginal cost.
a. net revenue minus depreciation.
b. total revenue minus total cost.
c. average revenue minus average total cost.
d. marginal revenue minus marginal cost.
answer
b. total revenue minus total cost.
question
9. Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business?
a. $300
b. $400
c. $700
d. $1,650
a. $300
b. $400
c. $700
d. $1,650
answer
c. $700
question
10. Explicit costs
a. do not require an outlay of money by the firm.
b. enter into the accountant's measurement of a firm's profit.
c. enter into the economist's measurement of a firm's profit.
d. Both b and c are correct.
a. do not require an outlay of money by the firm.
b. enter into the accountant's measurement of a firm's profit.
c. enter into the economist's measurement of a firm's profit.
d. Both b and c are correct.
answer
d. Both b and c are correct.
question
11. Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct?
a. Bev's total explicit costs are $26,300.
b. Bev's total implicit costs are $300.
c. Bev's accounting profits exceed her economic profits by $300.
d. Bev's economic profit is $3,700.
a. Bev's total explicit costs are $26,300.
b. Bev's total implicit costs are $300.
c. Bev's accounting profits exceed her economic profits by $300.
d. Bev's economic profit is $3,700.
answer
d. Bev's economic profit is $3,700.
question
12. Economic profit
a. will never exceed accounting profit.
b. is most often equal to accounting profit.
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit.
a. will never exceed accounting profit.
b. is most often equal to accounting profit.
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit.
answer
a. will never exceed accounting profit.
question
13. The difference between accounting profit and economic profit relates to
a. the manner in which revenues are defined.
b. how marginal revenue is calculated.
c. the manner in which costs are defined.
d. the price of the good in the market.
a. the manner in which revenues are defined.
b. how marginal revenue is calculated.
c. the manner in which costs are defined.
d. the price of the good in the market.
answer
c. the manner in which costs are defined.
question
14. A production function describes
a. how a firm maximizes profits.
b. how a firm turns inputs into output.
c. the minimal cost of producing a given level of output.
d. the relationship between cost and output.
a. how a firm maximizes profits.
b. how a firm turns inputs into output.
c. the minimal cost of producing a given level of output.
d. the relationship between cost and output.
answer
b. how a firm turns inputs into output.
question
15. Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is
a. 8 units of output.
b. 10 units of output.
c. 122 units of output.
d. 132 units of output.
a. 8 units of output.
b. 10 units of output.
c. 122 units of output.
d. 132 units of output.
answer
a. 8 units of output.
question
16. The marginal product of any input is the
a. increase in total cost associated with a one-unit increase in production.
b. change in total output associated with a $1.00 increase in total cost.
c. increase in total cost resulting from the hiring of an additional worker.
d. increase in total output obtained from one additional unit of that input.
a. increase in total cost associated with a one-unit increase in production.
b. change in total output associated with a $1.00 increase in total cost.
c. increase in total cost resulting from the hiring of an additional worker.
d. increase in total output obtained from one additional unit of that input.
answer
d. increase in total output obtained from one additional unit of that input.
question
17. When the marginal product of an input declines as the quantity of that input increases, the production function exhibits
a. increasing marginal product.
b. diminishing marginal product.
c. diminishing total product.
d. Both b and c are correct.
a. increasing marginal product.
b. diminishing marginal product.
c. diminishing total product.
d. Both b and c are correct.
answer
b. diminishing marginal product.
question
18. For a construction company that builds houses, which of the following costs would be a fixed cost?
a. the $50,000 per year salary paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $10,000 per year premium paid to an insurance company
d. All of the above are correct.
a. the $50,000 per year salary paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $10,000 per year premium paid to an insurance company
d. All of the above are correct.
answer
d. All of the above are correct.
question
19. Total cost can be divided into two types of costs:
a. fixed costs and variable costs.
b. fixed costs and marginal costs.
c. variable costs and marginal costs.
d. average costs and marginal costs.
a. fixed costs and variable costs.
b. fixed costs and marginal costs.
c. variable costs and marginal costs.
d. average costs and marginal costs.
answer
a. fixed costs and variable costs.
question
20. Average total cost is equal to
a. output/total cost.
b. total cost - total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output.
a. output/total cost.
b. total cost - total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output.
answer
d. total cost/output.
question
21. Which of the following statements is not correct?
a. Fixed costs are constant.
b. Variable costs change as output changes.
c. Average fixed costs are constant.
d. Average total costs are typically U-shaped.
a. Fixed costs are constant.
b. Variable costs change as output changes.
c. Average fixed costs are constant.
d. Average total costs are typically U-shaped.
answer
c. Average fixed costs are constant.
question
22. Variable cost divided by quantity produced is
a. average total cost.
b. marginal cost.
c. profit.
d. None of the above is correct.
a. average total cost.
b. marginal cost.
c. profit.
d. None of the above is correct.
answer
d. None of the above is correct.
question
23. Marginal cost equals
a. total cost divided by quantity of output produced.
b. total output divided by the change in total cost.
c. the slope of the total cost curve.
d. the slope of the line drawn from the origin to the total cost curve.
a. total cost divided by quantity of output produced.
b. total output divided by the change in total cost.
c. the slope of the total cost curve.
d. the slope of the line drawn from the origin to the total cost curve.
answer
c. the slope of the total cost curve.
question
24. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker?
a. $1.50
b. $2.50
c. $5
d. $10
a. $1.50
b. $2.50
c. $5
d. $10
answer
b. $2.50
question
25. If marginal cost is rising,
a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising
a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising
answer
c. marginal product must be falling.
question
26. Diminishing marginal product suggests that the marginal
a. cost of an extra worker is unchanged.
b. cost of an extra worker is less than the previous worker's marginal cost.
c. product of an extra worker is less than the previous worker's marginal product.
d. product of an extra worker is greater than the previous worker's marginal product.
a. cost of an extra worker is unchanged.
b. cost of an extra worker is less than the previous worker's marginal cost.
c. product of an extra worker is less than the previous worker's marginal product.
d. product of an extra worker is greater than the previous worker's marginal product.
answer
c. product of an extra worker is less than the previous worker's marginal product.
question
27. When marginal cost exceeds average total cost,
a. average fixed cost must be rising.
b. average total cost must be rising.
c. average total cost must be falling.
d. marginal cost must be falling.
a. average fixed cost must be rising.
b. average total cost must be rising.
c. average total cost must be falling.
d. marginal cost must be falling.
answer
b. average total cost must be rising.
question
28. The efficient scale of the firm is the quantity of output that
a. maximizes marginal product.
b. maximizes profit.
c. minimizes average total cost.
d. minimizes average variable cost.
a. maximizes marginal product.
b. maximizes profit.
c. minimizes average total cost.
d. minimizes average variable cost.
answer
c. minimizes average total cost.
question
29. How long does it take a firm to go from the short run to the long run?
a. six months
b. one year
c. two years
d. It depends on the nature of the firm.
a. six months
b. one year
c. two years
d. It depends on the nature of the firm.
answer
d. It depends on the nature of the firm.
question
30. A firm that produces and sells furniture gets to choose
a. how many workers to hire in both the short run and the long run.
b. the size of its factories in the short run but not in the long run.
c. which short-run average-total-cost curve to use in both the short tun and the long run.
d. All of the above are correct.
a. how many workers to hire in both the short run and the long run.
b. the size of its factories in the short run but not in the long run.
c. which short-run average-total-cost curve to use in both the short tun and the long run.
d. All of the above are correct.
answer
a. how many workers to hire in both the short run and the long run.
question
31. Economies of scale occur when a firm's
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. marginal costs are equal to average total costs for all levels of output.
a. marginal costs are constant as output increases.
b. long-run average total costs are decreasing as output increases.
c. long-run average total costs are increasing as output increases.
d. marginal costs are equal to average total costs for all levels of output.
answer
b. long-run average total costs are decreasing as output increases.
question
32. When a firm experiences constant returns to scale,
a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long-run average total cost.
c. long-run marginal cost is less than long-run average total cost.
d. the firm is likely to experience coordination problems.
a. long-run average total cost is unchanged, even when output increases.
b. long-run marginal cost is greater than long-run average total cost.
c. long-run marginal cost is less than long-run average total cost.
d. the firm is likely to experience coordination problems.
answer
a. long-run average total cost is unchanged, even when output increases.
question
33. When a firm experiences diseconomies of scale,
a. short-run average total cost is minimized.
b. long-run average total cost is minimized.
c. long-run average total cost increases as output increases.
d. long-run average total cost decreases as output increases.
a. short-run average total cost is minimized.
b. long-run average total cost is minimized.
c. long-run average total cost increases as output increases.
d. long-run average total cost decreases as output increases.
answer
c. long-run average total cost increases as output increases.
question
34. Chloe's Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe's Café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is
a. higher than $0.50.
b. lower than $0.50.
c. equal to $0.50.
d. higher than $500.
a. higher than $0.50.
b. lower than $0.50.
c. equal to $0.50.
d. higher than $500.
answer
b. lower than $0.50.
question
35. For any competitive market, the supply curve is closely related to the
a. preferences of consumers who purchase products in that market. b. income tax rates of consumers in that market.
c. firms' costs of production in that market.
d. interest rates on government bonds.
a. preferences of consumers who purchase products in that market. b. income tax rates of consumers in that market.
c. firms' costs of production in that market.
d. interest rates on government bonds.
answer
c. firms' costs of production in that market.
question
36. Who is a price taker in a competitive market?
a. buyers only
b. sellers only
c. both buyers and sellers
d. neither buyers nor sellers
a. buyers only
b. sellers only
c. both buyers and sellers
d. neither buyers nor sellers
answer
c. both buyers and sellers
question
37. In a competitive market, the actions of any single buyer or seller will
a. discourage entry by competitors.
b. influence the profits of other firms in the market.
c. have a negligible impact on the market price.
d. None of the above is correct.
a. discourage entry by competitors.
b. influence the profits of other firms in the market.
c. have a negligible impact on the market price.
d. None of the above is correct.
answer
c. have a negligible impact on the market price.
question
38. Which of the following industries is most likely to exhibit the characteristic of free entry?
a. electricity
b. satellite radio
c. mineral mining
d. tennis shoes
a. electricity
b. satellite radio
c. mineral mining
d. tennis shoes
answer
d. tennis shoes
question
39. Why does a firm in a competitive industry charge the market price?
a. If a firm charges less than the market price, it loses potential revenue.
b. If a firm charges more than the market price, it loses all its market power.
c. The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs.
d. All of the above are correct.
a. If a firm charges less than the market price, it loses potential revenue.
b. If a firm charges more than the market price, it loses all its market power.
c. The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs.
d. All of the above are correct.
answer
a. If a firm charges less than the market price, it loses potential revenue.
question
40. Which of the following firms is the closest to being a perfectly competitive firm?
a. the New York Yankees
b. Apple, Inc.
c. DeBeers diamond wholesalers
d. a wheat farmer in Kansas
a. the New York Yankees
b. Apple, Inc.
c. DeBeers diamond wholesalers
d. a wheat farmer in Kansas
answer
d. a wheat farmer in Kansas
question
41. Which of the following statements regarding a competitive firm is correct?
a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output.
b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.
c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.
d. For all firms, average revenue equals the price of the good.
a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output.
b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units.
c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.
d. For all firms, average revenue equals the price of the good.
answer
d. For all firms, average revenue equals the price of the good.
question
42. For a firm operating in a competitive industry, which of the following statements is not correct?
a. Price equals average revenue.
b. Price equals marginal revenue.
c. Total revenue is constant.
d. Marginal revenue is constant.
a. Price equals average revenue.
b. Price equals marginal revenue.
c. Total revenue is constant.
d. Marginal revenue is constant.
answer
c. Total revenue is constant.
question
43. Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will
a. increase his revenue, since the output decrease leads to a higher market price.
b. increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output.
c. decrease his revenue, since his output has decreased and the price remains the same.
d. decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom's output.
a. increase his revenue, since the output decrease leads to a higher market price.
b. increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output.
c. decrease his revenue, since his output has decreased and the price remains the same.
d. decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom's output.
answer
c. decrease his revenue, since his output has decreased and the price remains the same.
question
44. A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily
a. increase the firm's total revenue by $20.
b. increase the firm's total cost by $22.
c. decrease the firm's profit by $2.
d. increase the firm's average variable cost by $0.44.
a. increase the firm's total revenue by $20.
b. increase the firm's total cost by $22.
c. decrease the firm's profit by $2.
d. increase the firm's average variable cost by $0.44.
answer
d. increase the firm's average variable cost by $0.44.
question
45. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the nowhigher price. Once the firm has adjusted, its
a. quantity of output is higher than it was previously.
b. average total cost is higher than it was previously.
c. marginal revenue is higher than it was previously.
d. All of the above are correct.
a. quantity of output is higher than it was previously.
b. average total cost is higher than it was previously.
c. marginal revenue is higher than it was previously.
d. All of the above are correct.
answer
d. All of the above are correct.
question
46. If marginal cost exceeds marginal revenue, the firm
a. is most likely to be at a profit-maximizing level of output.
b. should increase the level of production to maximize its profit.
c. should reduce its average fixed cost in order to lower its marginal cost.
d. may still be earning a positive accounting profit.
a. is most likely to be at a profit-maximizing level of output.
b. should increase the level of production to maximize its profit.
c. should reduce its average fixed cost in order to lower its marginal cost.
d. may still be earning a positive accounting profit.
answer
d. may still be earning a positive accounting profit.
question
47. By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be
a. maximizing total revenue.
b. maximizing profit.
c. minimizing variable cost.
d. minimizing average total cost.
a. maximizing total revenue.
b. maximizing profit.
c. minimizing variable cost.
d. minimizing average total cost.
answer
b. maximizing profit.
question
48. Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should
a. drop the flight immediately.
b. continue the flight.
c. continue flying until the lease expires and then drop the run.
d. drop the flight now but renew the lease if conditions improve.
a. drop the flight immediately.
b. continue the flight.
c. continue flying until the lease expires and then drop the run.
d. drop the flight now but renew the lease if conditions improve.
answer
c. continue flying until the lease expires and then drop the run.
question
49. Total profit for a firm is calculated as
a. marginal revenue minus average total cost.
b. average revenue minus average total cost.
c. marginal revenue minus marginal cost.
d. (price minus average cost) times quantity of output.
a. marginal revenue minus average total cost.
b. average revenue minus average total cost.
c. marginal revenue minus marginal cost.
d. (price minus average cost) times quantity of output.
answer
d. (price minus average cost) times quantity of output.
question
50. The competitive firm's short-run supply curve is its
a. marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost.
b. marginal cost curve.
c. marginal cost curve, but only the portion above the minimum of average total cost.
d. marginal cost curve, but only the portion above the minimum of average variable cost.
a. marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost.
b. marginal cost curve.
c. marginal cost curve, but only the portion above the minimum of average total cost.
d. marginal cost curve, but only the portion above the minimum of average variable cost.
answer
d. marginal cost curve, but only the portion above the minimum of average variable cost.
question
51. When price is below average variable cost, a firm in a competitive market will
a. shut down and incur fixed costs.
b. shut down and incur both variable and fixed costs.
c. continue to operate as long as average revenue exceeds marginal cost.
d. continue to operate as long as average revenue exceeds average fixed cost.
a. shut down and incur fixed costs.
b. shut down and incur both variable and fixed costs.
c. continue to operate as long as average revenue exceeds marginal cost.
d. continue to operate as long as average revenue exceeds average fixed cost.
answer
a. shut down and incur fixed costs.
question
52. When a perfectly competitive firm decides to shut down, it is most likely that
a. marginal cost is above average variable cost.
b. marginal cost is above average total cost.
c. price is below the firm's average variable cost.
d. fixed costs exceed variable costs.
a. marginal cost is above average variable cost.
b. marginal cost is above average total cost.
c. price is below the firm's average variable cost.
d. fixed costs exceed variable costs.
answer
c. price is below the firm's average variable cost.
question
53. In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if
a. price is less than average total cost.
b. price is greater than average total cost.
c. average revenue is greater than average fixed cost.
d. average revenue is greater than marginal cost.
a. price is less than average total cost.
b. price is greater than average total cost.
c. average revenue is greater than average fixed cost.
d. average revenue is greater than marginal cost.
answer
a. price is less than average total cost.
question
54. The term shutdown
a. and the term exit both refer to short-run decisions that a firm might make.
b. and the term exit both refer to long-run decisions that a firm might make.
c. refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make.
d. refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.
a. and the term exit both refer to short-run decisions that a firm might make.
b. and the term exit both refer to long-run decisions that a firm might make.
c. refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make.
d. refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make.
answer
c. refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make.
question
55. Suppose you value a special watch at $100. You purchase it for $75. On your way home from class one day, you lose the watch. The store is still selling the same watch, but the price has risen to $85. Assume that losing the watch has not altered how you value it. What should you do?
a. Pay the $85 to buy the watch.
b. Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch.
c. Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch.
d. Do not buy the watch
a. Pay the $85 to buy the watch.
b. Wait to see if the watch goes on sale. If the price drops to $75 or less, buy the watch.
c. Wait to see if the watch goes on sale. If the price drops to $25 or less, buy the watch.
d. Do not buy the watch
answer
a. Pay the $85 to buy the watch.
question
56. A sunk cost is one that
a. changes as the level of output changes in the short run.
b. was paid in the past and will not change regardless of the present decision.
c. should determine the rational course of action in the future.
d. has the most impact on profit-making decisions.
a. changes as the level of output changes in the short run.
b. was paid in the past and will not change regardless of the present decision.
c. should determine the rational course of action in the future.
d. has the most impact on profit-making decisions.
answer
b. was paid in the past and will not change regardless of the present decision.
question
57. In the long run, a firm will exit a competitive industry if
a. total revenue exceeds total cost.
b. the price exceeds average total cost.
c. average total cost exceeds the price.
d. Both a and b are correct.
a. total revenue exceeds total cost.
b. the price exceeds average total cost.
c. average total cost exceeds the price.
d. Both a and b are correct.
answer
c. average total cost exceeds the price.
question
58. Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then
a. average revenue is maximized.
b. the firm must be earning a positive economic profit.
c. marginal revenue is greater than the market price.
d. price must be equal to marginal cost.
a. average revenue is maximized.
b. the firm must be earning a positive economic profit.
c. marginal revenue is greater than the market price.
d. price must be equal to marginal cost.
answer
d. price must be equal to marginal cost.
question
59. The short-run market supply curve in a perfectly competitive industry
a. shows the total quantity supplied by all firms at each possible price.
b. is perfectly inelastic at the market price.
c. is perfectly elastic at the market price.
d. shows the variety of prices that different firms will charge for a given quantity.
a. shows the total quantity supplied by all firms at each possible price.
b. is perfectly inelastic at the market price.
c. is perfectly elastic at the market price.
d. shows the variety of prices that different firms will charge for a given quantity.
answer
a. shows the total quantity supplied by all firms at each possible price.
question
60. In the short run for a particular market, there are 5,000 firms. Each firm has a marginal cost of $7 when it produces 200 units of output. One point on the market supply curve is
a. quantity = 5,000; price = $7.
b. quantity = 35,000 price = $35,000.
c. quantity = 1,000,000, price = $7.
d. quantity = 1,000,000, price = $35,000.
a. quantity = 5,000; price = $7.
b. quantity = 35,000 price = $35,000.
c. quantity = 1,000,000, price = $7.
d. quantity = 1,000,000, price = $35,000.
answer
c. quantity = 1,000,000, price = $7.
question
61. Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i) New firms will enter the market. (ii) In the short run, price will rise; in the long run, price will rise further. (iii) In the long run, all firms will be producing at their efficient scale.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii) and (iii)
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii) and (iii)
answer
b. (i) and (iii) only
question
62. When existing firms in a competitive market are profitable, an incentive exists for
a. new firms to seek government subsidies that would allow them to enter the market.
b. new firms to enter the market, even without government subsidies. c. existing firms to raise prices.
d. existing firms to increase production.
a. new firms to seek government subsidies that would allow them to enter the market.
b. new firms to enter the market, even without government subsidies. c. existing firms to raise prices.
d. existing firms to increase production.
answer
b. new firms to enter the market, even without government subsidies.
question
63. Entry into a market by new firms will increase the
a. supply of the good.
b. profits of existing firms.
c. price of the good.
d. marginal cost of producing the good.
a. supply of the good.
b. profits of existing firms.
c. price of the good.
d. marginal cost of producing the good.
answer
a. supply of the good.
question
64. The assumption of a fixed number of firms is appropriate for analysis of
a. the short run but not the long run.
b. the long run but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
a. the short run but not the long run.
b. the long run but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
answer
a. the short run but not the long run.
question
65. The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
a. shift the demand curve outward so that price will rise to the level of production cost.
b. cause the remaining firms to collude so that they can produce more efficiently.
c. cause the market supply to decline and the price of textiles to rise.
d. cause firms in the textile industry to suffer long-run economic losses.
a. shift the demand curve outward so that price will rise to the level of production cost.
b. cause the remaining firms to collude so that they can produce more efficiently.
c. cause the market supply to decline and the price of textiles to rise.
d. cause firms in the textile industry to suffer long-run economic losses.
answer
c. cause the market supply to decline and the price of textiles to rise.
question
66. Suppose that the organic-produce industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
a. shift the demand curve outward so that price will rise to the level of production cost.
b. cause the remaining firms to collude so that they can produce more efficiently.
c. cause the market supply to decline and the price of organic produce to rise.
d. cause firms in the organic-produce industry to suffer long-run economic losses.
a. shift the demand curve outward so that price will rise to the level of production cost.
b. cause the remaining firms to collude so that they can produce more efficiently.
c. cause the market supply to decline and the price of organic produce to rise.
d. cause firms in the organic-produce industry to suffer long-run economic losses.
answer
c. cause the market supply to decline and the price of organic produce to rise.
question
67. When firms are neither entering nor exiting a perfectly competitive market,
a. total revenue must equal total variable cost for each firm.
b. economic profits must be zero.
c. price must equal average variable cost for each firm.
d. Both a and c are correct.
a. total revenue must equal total variable cost for each firm.
b. economic profits must be zero.
c. price must equal average variable cost for each firm.
d. Both a and c are correct.
answer
b. economic profits must be zero.
question
68. If all firms have the same costs of production, then in long-run equilibrium,
a. price exceeds average total cost for all firms.
b. price exceeds marginal cost for all firms.
c. some firms may earn positive economic profits.
d. all firms have zero economic profits and just cover their opportunity costs.
a. price exceeds average total cost for all firms.
b. price exceeds marginal cost for all firms.
c. some firms may earn positive economic profits.
d. all firms have zero economic profits and just cover their opportunity costs.
answer
d. all firms have zero economic profits and just cover their opportunity costs.
question
69. The long-run supply curve for a competitive industry may be upward sloping if
a. there are barriers to entry.
b. firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry.
c. some resources are available only in limited quantities.
d. accounting profits are positive.
a. there are barriers to entry.
b. firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry.
c. some resources are available only in limited quantities.
d. accounting profits are positive.
answer
c. some resources are available only in limited quantities.
question
70. In a market with a fixed number of firms, as long as price is above average
a. variable cost, each firm's marginal-cost curve is its supply curve.
b. variable cost, each firm's average-total-cost curve is its supply curve.
c. total cost, each firm's marginal-cost curve is its supply curve.
d. total cost, each firm's average-total-cost curve is its supply curve.
a. variable cost, each firm's marginal-cost curve is its supply curve.
b. variable cost, each firm's average-total-cost curve is its supply curve.
c. total cost, each firm's marginal-cost curve is its supply curve.
d. total cost, each firm's average-total-cost curve is its supply curve.
answer
a. variable cost, each firm's marginal-cost curve is its supply curve.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
