Microeconomics E304K Final Review

Variable inputs are those inputs:
a. that depend on the level of production
b. that are cheap enough to own rather than lease
c. in which diminishing returns do not occur in short run
d. that can be stored for less than one year
e. c and d

If the cost per unit of capital is equal to twice the cost per unit of labor, then the firm should:
a. hire twice as much capital as labor
b. hire twice as much labor as capital
c. select an input mix such that MPl is twice MPk
d. select an input mix such that MPk is twice MPl
e. both a and d

The average total cost of making 10 cakes is $2.80. The average total cost of making 11 cakes is $3.00. The marginal cost of the 11th cake is:
a. $0.20
b. $2.80
c. $3.00
d. $5
e. None of the above

Which is NOT a characteristic of perfect competition?
a. A large number of small firms
b. A perfectly elastic market demand
c. Easy entry and exit
d. Homogeneous products
e. None of the above

Hammer's Halloween Shoppe opens in September and closes mid-November every year. What can we deduce about the store's cost structure?
a. Price is above average total cost for the months the store is closed
b. Price is above marginal cost for the entire year
c. Price is above average variable cost for the months the store is open
d. Fixed costs of opening a costume store are really high
e. None of the above

With constant returns to scale, long-run average total cost:
a. must be decreasing
b. must be increasing
c. must equal long run marginal cost
d. is U-shaped
e. None of the above

The sandal industry consists of many firms with U-shaped ATC and is in long-run equilibrium. If the federal government taxes sandal makers $1 for each pair of sandals produced, it is most likely that:
a. the number of firms will decrease, and industry output will stay the same
b. the number of firms will stay the same, but industry output will decrease
c. the number of firms will increase, but industry output will still the same
d. output per firm will increase, but industry output will decrease
e. the number of firms will decrease, and industry output will decrease

A competitive market is comprised of firms that face identical cost structures. The firms experience an increase in demand that results in positive profits for them. 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, price will rise further
(iii) in the long run, all firms will be producing at their efficient scale
a. (i) only
b. (i) and (ii) only
c. (i) and (iii) only
d. (ii) and (iii) only
e. all three

Maria values the math book that she bought at only $15 today, and its sell-back price at the Co-Op is just $10. Amy, who values the book at $25, offers Maria $20 to buy the book. Is selling the book to Amy for $20 a Pareto improvement?
a. Yes, because Amy has compensated Maria for the loss imposed by the Co-Op sell-back policy
b. Yes, because both have gained from the trade
c. No, because Maria is selling a book that costs $40 for $20
d. No, because Maria could have gotten $5 more--Amy should have paid as much as $25
e. None of the above

A monopolist's downward-sloping demand curve has:
a. Average revenue always greater than price
b. Marginal revenue always greater than the price
c. Marginal revenue always less than the price
d. Average revenue always less than the price
e. None of the above

What is NOT a cause of a monopoly?
a. Economies of scale
b. Control over an important input
c. Government franchises, patents, copyrights
d. Geographical location
e. High profit rates

The theory of monopolistic competition predicts all of the following EXCEPT:
a. When the industry is in long run equilibrium, price exceeds marginal cost
b. Customers have a large product variety from which to choose
c. When the firm is in long run equilibrium, the demand curve is tangent to the ATC curve
d. In the long run, free entry and exit ensure that each firm earns zero profits
e. If the firm increases its price, demand for its product will drop to zero

Which of the following is LEAST LIKELY to be an example of demand-based price discrimination?
a. Your professor's low-priced senior citizen movie ticket
b. Cheap airfares if you stay over Saturday night at your destination
c. Lady's Day at the ballpark
d. Out-of-state vs. in-state tuition
e. All are good examples of demand-based price discrimination

Monopolistic practices include:
a. Tie-in sales
b. Exclusive dealing
c. Creating decreasing returns of scale
d. a and b
e. a, b, and c

A Dutch auction is:
a. Has prices falling until the item is sold
b. Sells at the price offered by the second-highest bidder
c. Sells at the opportunity cost of the auctioned item
d. Has prices rising until the item is sold

Which statement is true?
a. Economic profit is always greater than or equal to accounting profit
b. Economic profit is always less than or equal to account profit
c. Economic profit is always equal to accounting profit
d. The difference between accounting profit and economic profit represents the cost of purchased input
e. a and d

Radhu has a Xerox copy business. Which of the following is a fixed cost in his business?
a. The electricity bill
b. The salaries of the three employees
c. The paper to make the copies
d. The three copy machines
e. b and c

After some level of output, if a firm increases labor by 10% and keeps capital input constant, then its output will:
a. increase by 10%
b. decrease by 10%
c. increase by more than 10%
d. increase by less than 10%
e. none of the above

In a competitive market the marginal revenue of a firm is:
a. always equal to the price
b. equal to the price at the equilibrium
c. always greater than the price
d. always less than the price
e. can't make a general statement

Which of the following is ALWAYS an economic reason to shut down?
a. Economic profits are negative
b. Variable costs exceed revenues
c. Total costs exceed revenues
d. Revenues do not cover fixed costs
e. a and c

Abel and Becky are dividing up vegetables from their garden. Each suggests a particular way of dividing the harvest. After discussing the two options, they both agree that Abel's suggestion is better. Rather than spend time trying to think up an even better way of dividing the vegetables, they follow Abel's suggestion. Which of the following is true?
a. Abel's suggestion is Pareto optimal
b. Becky's suggestion is Pareto optimal
c. Abel's suggestion is a Pareto improvement over Becky's suggestion
d. Becky's suggestion is a Pareto improvement over Abel's
e. None of the above

Perfect competition is economically efficient because:
a. P = MR
b. P < MR
c. P > MR
d. P > ATC
e. P = MC

A monopolist cannot set price extremely high because:
a. Demand is not perfectly inelastic
b. Threat of entry by potential competitors
c. Higher prices reduce consumer surplus
d. a and b
e. all of the above

If Bank-in-the-Box is a monopolist in its market, and the wage rate of bank tellers rises, in the long run the bank will:
a. Maintain price and suffer losses
b. Lower price to boost sales
c. Shut down if the wage rate raises costs and AVC is below price
d. Raise price and earn greater profits
e. Raise price and earn lower profits

A firm in monopolistically competitive market will earn short-run economic profit when it:
a. Sets its price above marginal cost
b. Sets its price above average cost
c. Produces at a level that minimizes average total cost
d. Produces at a price greater than average variable cost
e. Sets its price equal to marginal cost

Which of the following is the best example of cost-based price discrimination?
a. Bottled water offered in a hotel is priced much higher than the similar product on sale in the CVS
b. In-state tuition is much lower than out-of-state tuition
c. The price of a ticket at the Germany Theaters is $6.50 for senior citizens, $9 for those 25-59
d. Austin's Pizza provides discounts for consumers who bring in coupons from the Austin American-Statesman
e. The price of a bottle of 18-year old Scotch whiskey is twice that of a 12-year old Scotch from the same distillery

The inefficiency from monopoly results because:
a. High monopoly prices are not equitable
b. Monopolies tend to be too big to operate efficiently
c. Monopolists under-produce relative to the ideal
d. All of the above
e. None of the above

Which of the following military strategies is an example of tit-for-tat strategy?
a. Placing a blockade around an island until the enemy removes their weapons from it
b. Using weapons of mass destruction to completely annihilate the enemy if they launch a small border attacks first
c. Ignoring the first attack, but waging war against subsequent attacks
d. Maintaining complete neutrality in all conflicts
e. Attacking one of your enemy's ships every time they attack one of your ships

The practice of bundling (tying) goods is illegal on the grounds that:
a. It increases the well-being of society
b. Collusive agreements are not conducive to cooperative outcomes
c. It allows firms to expand their market power
d. It increases the competition among firms
e. It allows firms to form collusive agreements

Which of the following is FALSE for oligopoly?
a. The market is dominated by a few producers
b. Firms can affect the price
c. Each oligopolist maximizes its own profit taking the other firms' actions into account
d. If oligopolists collude, they jointly maximize their profit
e. Oligopolists make zero economic profits

As production increases in a typical firm:
a. Total fixed cost increases at a constant rate.
b. Average fixed cost exceeds average variable cost.
c. Average variable cost decreases and approaches zero.
d. Average variable cost approaches average total cost.
e. None of the above.

A positive economic profit occurs when a firm:
a. Earns normal returns.
b. Earns above-normal returns.
c. Continues its production.
d. Total revenue equals total cost.
e. b and d.

Which of the following is true for production in the short-run?
a. Average product will be at its maximum when marginal product is at the maximum.
b. Average product will be at its maximum when marginal product is zero.
c. Average product is negative when marginal product is negative.
d. Average product never reaches a maximum.
e. Average product will be at its maximum when it equals marginal product.

Which of these is (are) true in a competitive industry? In the long run:
(i) The average cost curve is identical to the marginal cost curve.
(ii) Once equilibrium is reached firms will enter or exit.
a. (i)
b. (ii)
c. Both (i) and (ii)
d. Neither (i) nor (ii)

In the short run a particular firm cannot break its lease without paying large fees. When will it produce positive output in the short run?
a. If fixed costs are less than variable costs.
b. If the minimum of the AVC curve is below the market price.
c. If marginal cost is above market price.
d. If the ATC curve has one point above market price.
e. b and d.

A firm has chosen its profit-maximizing level of output. At this level of output, its price is $20 and its ATC is $25. The firm:
a. Has made a mistake; it should have shut down
b. Is making a loss of $20 per unit of output
c. Is making a profit of $5 per unit of output
d. Is making a profit if AVC is less than $20
e. None of the above

Suppose a perfectly competitive market is in long-run equilibrium. Then there is a permanent increase in demand. As a result, in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the initial equilibrium.
a. falls; decreases; is equal to
b. falls; does not change; lower than
c. rises; increases; higher than
d. rises; decreases; lower than
e. rises; does not change; is equal to

In a competitive industry in the long run:
a. P=LRMC
b. Each firm is earning the maximum profits possible.
c. P=minimum LRAC
d. a and b.
e. All of the above

In the long run under perfect competition, accounting profits are positive. This is:
a. False, in the long run accounting profits must be zero.
b. True if economic profits = 0, since accounting profits = economic profits - opportunity cost.
c. True if economic profits > 0, since accounting profits = economic profits - opportunity cost.
d. True if economic profits = 0, since accounting profits = economic profits + marginal cost.
e. False; in the short run accounting profits must be zero.

If publishers need to pay large fixed costs, few books would ever get published without copyrights, because:
a. This is wrong; as a monopolist the publisher will always be willing to publish the book.
b. The marginal cost to the publisher is very high.
c. Competition would drive the price down to marginal cost.
d. Without copyrights, the price would be so high that no one could afford to buy the book.
e. None of the above.

In monopolistic competition firms achieve some degree of market power:
a. by producing differentiated products.
b. by virtue of size alone.
c. because of barriers to exit from the industry.
d. because of barriers to entry to the industry.
e. from the small number of producers.

If there are only two industries in an economy, one competitive (C) and one monopolized (M), we will find:
a. Too many inputs in C and Price > Marginal Cost in C.
b. Too many inputs in M and Price > Marginal Cost in M.
c. Too few inputs in C and Price < Marginal Cost in C.
d. Too few inputs in M and Price > Marginal Cost in M.
e. Both b and c.

The following statements are true for BOTH perfectly competitive and monopolistically competitive markets EXCEPT:
a. no long-run economic profits.
b. some control over the price.
c. many sellers.
d. many buyers.
e. no barriers to market entry or exit.

The auto industry is an example of a/an:
a. oligopoly.
b. monopoly.
c. perfectly competitive market.
d. monopolistically competitive market.
e. cartel.

Telephone and airline deregulation:
a. Ended cross-subsidies.
b. Raised prices paid by the consumer.
c. Reduced competition by ending subsidies to inefficient producers.
d. b and c.
e. All of the above.

Comparing government granting licenses to operate TV stations to its auctioning off those licenses:
a. Both lead to the most efficient producer obtaining the license.
b. Granting licenses leads to more efficient production, but doesn't generate any revenue for the government.
c. Granting licenses leads to less efficient production and doesn't generate any revenue for the government.
d. Neither leads to the most efficient producer obtaining the license.
e. Granting licenses leads to more efficient production, and generates more revenue for the government.

At one private university it is very common for men and women to marry before they graduate. Women graduate before men and often have children right after graduation. Insurance premiums for university provided health insurance are about $2,500 per semester for enrolled students. However, once a spouse graduates the premium rises
to $7,000 per semester. This is likely due to:
a. moral hazard; couples will be less careful about birth control.
b. adverse selection; women planning to have a baby are more likely to purchase insurance.
c. an excess burden; this excess burden is somewhere between $0 and $4500.
d. low elasticity of demand for insurance; higher markups are possible with lower elasticities.
e. none of the above.

Elephants may become extinct in part due to poachers. To protect the elephants from poachers, one economist argues elephants should be auctioned off by governments to the highest bidder. The motivation for this argument
a. the fact that the free market can solve almost any real world problem.
b. most economists are nuts.
c. the importance of property rights.
d. the fact that elephants are an important natural resource.
e. the fact that the government must intervene when markets fail.

Honeybees pollinate flowers and other crops and therefore provide a benefit for which beekeepers are not compensated. Given what you know about externalities, which of the following is likely to be true?
a. Honeybees are undersupplied compared to when social benefits and social costs are considered.
b. Honeybees are oversupplied compared to when social benefits and social costs are considered.
c. The market price of honey will be higher because of this added benefit from pollination.
d. Beekeepers should be taxed for each unit of honey produced.
e. b and c.

Which of the following is correct?
a. Governments should ban all pollution.
b. Pollution is a side-effect of economic growth, so government should not interfere.
c. Building windmills and solar plants will avoid all social costs of energy production.
d. Cap and trade is a common way to reduce pollution in the U.S.
e. Taxing pollution helps the market price reflect social costs.

Today the U.S. individual income tax accounts for about percent of federal revenue.
a. 20
b. 50
c. 80
d. 90
e. 95

In order to make taxes more progressive the government could:
a. introduce a national lottery.
b. raise the deduction for mortgage interest.
c. abolish the deduction for large uninsured medical expenses.
d. eliminate the income tax and replace it with a sales tax.
e. none of the above.

In determining whether or not to attend college, the student's calculation must involve all of the following EXCEPT the:
a. Cost of housing in college.
b. Cost of housing after college.
c. Present value of lifetime earnings with a college degree.
d. Present value of lifetime earnings with a high school degree.
e. Opportunity cost of attending college.

Which one is an effect on the U.S. labor market of the immigration of low-skilled workers?
a. Wage of high-skilled workers decrease.
b. Wage of low-skilled workers decrease.
c. The demand for low-skilled workers shifts right.
d. The relative supply of high-skilled workers increases.
e. Wages of everyone (regardless of skill level) increase.

The number of people in poverty in the U.S. when the cost of a minimally nutritious diet decreases.
a. increases if the poverty line is relative
b. decreases if the poverty line is relative
c. increases if the poverty line is absolute
d. decreases if the poverty line is absolute
e. increases for both absolute and relative poverty lines

What is the ratio of earnings of full-time Asian-American workers compared to white workers in the United States?
a. 0.5
b. 0.7
c. 0.9
d. 1.0
e. 1.1

What is the cause of the single biggest problem facing Social Security over the decades to come?
a. There will be fewer workers compared to retired people.
b. FICA taxes have decreased so there will not be a sufficient amount of money in the system.
c. The benefits paid to retired people will no longer be sufficient due to inflation.
d. There are more workers now than there were decades ago when the system worked well.
e. More Americans are hiding their income from the IRS and thus not contributing to Social Security.

Early in a typical working life wages rise by per year after inflation, while late in a typical working life they rise by per year after inflation.
a. 6; 6
b. 6; 3
c. 6; 0
d. 3; 3
e. 3, -1

If demand of labor is _ _, an increase in minimum wage has no effect on the level of employment.
a. perfectly elastic
b. elastic
c. unit elastic
d. inelastic
e. perfectly inelastic

If the interest rate is 3%, how long does it take for $1000 to double?
a. About 8 years.
b. About 13 years.
c. About 18 years.
d. About 23 years.
e. About 33 years.

4. Your professor of English earns $50,000 at UT. He could instead work in a bar and make $30,000. Thus:
a. His opportunity cost is $50,000.
b. His opportunity cost is $20,000.
c. His economic rent is $80,000.
d. His economic rent is $30,000.
e. His economic rent is $20,000.

If income were distributed perfectly equally, the Lorenz curve would be:
a. A vertical line lying on vertical axis at 100%.
b. A horizontal line lying on horizontal axis at 0%.
c. A curved line between 0% and 100%.
d. A 45-degree line between 0% and 100%.
e. None of the above.

People say they will give up their addiction to cigarettes (or anything else) next week, but not today. This illustrates that they engage in:
a. Hyperbolic discounting.
b. Parabolic discounting.
c. Elliptical discounting.
d. Gini discounting.
e. Irrational discounting.

Germans love asparagus so much that they eat an average of 3lbs per month at the current price. Poland joins the EU, leading to a higher cost of asparagus production. What will happen in the asparagus market?
a. There will be fewer firms and industry supply will shift left.
b. There will be more firms and industry supply will shift left.
c. Average total cost of asparagus will remain the same.
d. Asparagus farmers will expand production to cover costs.
e. There will be no change in the number of firms.

The market for backpacks is in a perfectly competitive long-run equilibrium. A reduction in loan interest rates increases the number of college students. In the short-run profits will be , and in the long-run profits will be .
a. Zero; zero
b. Negative; zero.
c. Positive; positive.
d. Zero; positive.
e. Positive; zero.

Calvin loves shock tarts and hates chocolate. Susie loves chocolate, but hates shock tarts. On Halloween Calvin gets 3 shock tarts and 100 chocolates. Susie gets 1 shock tart and 3 chocolates. What could Calvin potentially end up with at a Pareto Optimum?
a. 4 shock tarts and 0 chocolates
b. 3 shock tarts and 3 chocolates
c. 3 shock tarts and 100 milk chocolates
d. 4 shock tarts and 100 milk chocolates
e. either a or d

Which of the following is true about monopolists' behavior?
a. When marginal cost rises, monopolists increase production.
b. Monopolists set price equal to marginal cost to discourage entry.
c. When monopolists increase price, the same number of units is sold.
d. Monopolists set price above marginal cost.
e. Monopolists produce at lower ATC than firms in a competitive market.

Wacom is the monopolist selling computer graphics tablets to Chinese artists. If traditional painting by oil and brush begins to regain popularity, what will probably happen in the market for these graphics tablets?
a. The price of Wacom's product will drop below marginal revenue.
b. Quantity produced will be at the minimum of long-run average cost.
c. Wacom will earn a lower profit.
d. Wacom will exit the industry because it cannot cover costs.
e. All but a.

Texas A&M sells gravesites with a view of the stadium. So does Duke University. If Duke charges a higher price than A&M, we can assume that:
a. Demand at Duke is less elastic and less consumer surplus is extracted.
b. Demand at Duke is less elastic and more consumer surplus is extracted.
c. Demand at Duke is more elastic and less consumer surplus is extracted.
d. Demand at Duke is more elastic and more consumer surplus is extracted.
e. Can't tell without more information.

This study resource was Jen has a dog-walking business. Her AFC = $4 and her AVC today = $15. If the current neighborhood price is $12, should Jen do any dog-walking today—why or why not?
a. Yes, because she is covering average total cost.
b. Yes, because she is covering average fixed cost.
c. No, because she isn't covering average fixed cost.
d. No, because she isn't covering average total cost.
e. No, because she isn't covering average variable cost.

Colin's Couches is a perfect competitor. At the current production level, AVC = $300, ATC = $600, and MC = $450. The price per couch is $500. At this price Colin is ____________ and should _____________.
a. Making a profit; increase output
b. Making a loss; decrease output
c. Making a loss; increase output
d. Making a profit; decrease output
e. Making a loss; keep output the same

Small farmers in a village see there are now economies of scale in farming. What should they do?
a. Decrease the size of their farms.
b. Increase the size of their farms.
c. Nothing.
d. Farm size has nothing to do with economies of scale.
e. a or c

The price of water guns is $15. Each producer has costs with minimum LRAC = $20. What will happen to supply and the price of water guns in the long run?
a. Each firm will continue producing where LRAC = MC; no entry or exit occurs.
b. Firms will leave the market, causing a decrease in supply until price equals $20.
c. Firms will enter the market until supply increases to raise demand until price equals $20.
d. Since price is less than the minimum LRAC, the industry will shut down.
e. Price will remain constant at $15, but industry supply will decrease.

Pam prefers a glass of orange juice to a glass of milk. When she also has some cereal, she prefers milk to orange juice. Her preferences violate which concept?
a. Transitivity
b. Independence of Irrelevant Alternatives.
c. First preference voting.
d. Second preference voting.
e. No concepts are violated.

If an oil well is not pumping when oil is $30/barrel, but is pumping when oil is $100/per barrel, we can be sure:
a. $30 < MC < $100
b. AFC > $30
c. $30 < ATC < $100
d. $30 < minimum AVC < $100
e. minimum AVC > $30

Which of the following is correct?
a. Fixed inputs cannot be changed in the short run.
b. Labor is usually a fixed input.
c. Land is usually a variable input.
d. Variable inputs can only be changed in the long run.
e. Fixed inputs can be changed in the middle run.

Rachel, a profit-maximizing economics student, tells me that her pie business spends $200/week on materials and sells $600 worth of pies, so her profits are $400/week. I tell her:
a. that's true if her opportunity cost is 0.
b. her opportunity cost must be no more than $400/week.
c. her opportunity cost must be $600 per week.
d. All of the above
e. a and b.

At a firm's current input level, the marginal product of capital is 16, and the marginal product of labor is 4. The price of capital equals the price of labor. If the firm wants to increase output at the same total cost:
a. the price of labor must increase.
b. the price of capital must decrease.
c. more labor and less capital should be used.
d. more capital and less labor should be used.
e. more products should be produced to reach the minimum level of average total cost.

Total costs are $20,000 at an output of 100, and $25,000 at an output of 150. How much are fixed costs?
a. $100
b. $5,000
c. $10,000
d. Cannot be determined from the information given
e. None of the above.

As output increases, which of the following is NOT true?
a. Average fixed costs decrease
b. Average variable costs eventually increase
c. Average total costs eventually decrease
d. Total fixed costs do not change
e. Average fixed costs remain positive

Female porn stars are paid MUCH more than male porn stars. This is most likely the result of:
a. Greater demand for female stars.
b. Greater demand for male stars.
c. Movements up the supply curve of male stars.
d. Movements up the demand curve for male stars.
e. Both a and d.

A strike by hockey players closes the National Hockey League for part of a season. In the market for hockey pucks it:
a. Raises price because of the scarcity of pucks.
b. Reduces price because supply increases as companies try to maintain profits.
c. Raises price as companies try to maintain their profits with fewer sales
d. Reduces price because demand for pucks shifts left.
e. Raises price because demand for pucks shifts right.

A headline stated, "As the price of personal computers continues to fall, demand increases." This headline is wrong, because:
a. Falling prices for personal computers increase the amount demanded.
b. Falling prices for personal computers increase the amount supplied.
c. A change in the price of personal computers shifts the demand curve.
d. A change in the price of personal computers shifts the supply curve.
e. The statement is backwards: increased demand leads to lower prices.

Congress raises the minimum wage from $7.25 per hour to $10/hour. The median wage today is $20/hour. This price floor is (effective/ineffective) for the median worker. This policy change will lead to a (surplus/shortage) of low-wage workers.
a. effective; surplus
b. ineffective; shortage
c. ineffective; surplus
d. effective; shortage
e. effective; not enough information

At a price of $10 the quantity purchased is 50 widgets. At a price of $20 the quantity purchased is 30. What is the elasticity of demand as the price goes from $10 to $20?
a. 1
b. 7/8
c. 4/3
d. 7/3
e. 3/4

The price of a good whose demand is inelastic falls.
a. Quantity sold increases and total revenue increases.
b. Quantity sold increases and total revenue decreases.
c. Quantity sold decreases and total revenue increases.
d. To answer, we would need to know whether the elasticity of demand is between 1 and 2.
e. To answer, we would need to know whether the elasticity of demand is between 1⁄2 and 1.

People and organizations must make choices because:
a. They must act rationally.
b. Of resource scarcity.
c. Of the law of diminishing returns.
d. Of ceteris paribus.
e. None of the above.

A simple economy produces only two goods: doughnuts and bongo drums. It takes 1 worker to produce 5 doughnuts per day and 1 worker to produce 1 drum. What is the opportunity cost of a drum?
a. 1/5 doughnut
b. 1/2 doughnut
c. 1/5 worker
d. 2 doughnuts
e. 5 doughnuts

Recently there is a rumor that a serial killer is on the loose in Miami. What would be the effect of this rumor on the demand curve for vacations in Miami?
a. shifts right because of a change in size of population.
b. shifts left because of a change in size of population.
c. shifts right because of a change in taste.
d. shifts left because of a change in taste.
e. shifts left because of a change in income.

Suppose that the price of a wedding consists of the price of renting a place plus the price of food served to the guests. If wedding places become more expensive:
a. The supply curve of weddings will shift to right.
b. The supply curve of weddings will shift to left.
c. There is a change in the amount of weddings supplied.
d. We move up along the supply curve of weddings.
e. We move down along the supply curve of weddings.

There is excess demand in a market. The price:
a. will increase and so will the excess demand.
b. will decrease and so will the excess demand.
c. remains fixed and the excess demand disappears gradually.
d. increases and the excess demand will decrease.
e. will increase but the excess demand will remain.

The best example of a public good is:
a. A petting zoo.
b. Military defense.
c. Undergraduate education at UT.
d. A driver's license.
e. A textbook.

The new "Larger 3000", an SUV, uses pollutants as fuel and makes clean air as a combustion residual. Nonetheless, this car is priced the same as every other car in the same range of performance. What would best describe this scenario?
a. The car creates a negative externality.
b. Private demand has to decrease.
c. The private demand curve understates the marginal benefit of the good.
d. The private demand curve overstates the marginal benefit of the good.
e. a and c.

Which of the following is correct?
a. Governments should ban all pollution.
b. Pollution is a side-effect of beneficial economic growth, so government should not interfere.
c. Building windmills and solar plants will eliminate the social costs of energy production.
d. A carbon tax is widely used to reduce pollution in the U.S.
e. Taxing pollution helps the market price reflect social cost.

A medical company is making PRUDADA, the only pill that cures a deadly cancer. The company has patented the drug and is a profit-maximizer. The government imposes a tax on all medication that includes a certain compound found in PRUDADA. The tax incidence will be:
a. equally on customers and the producer—price will increase by half the tax.
b. mostly on the firm—price will rise by nearly the amount of the tax.
c. mostly on the firm—price will rise only a little.
d. mostly on the consumer—price will rise only a little.
e. mostly on the consumer—price will rise by nearly the amount of the tax

How is the problem of adverse selection present in health insurance?
a. Health insurance companies charge higher premiums expecting the unhealthy to desire more health insurance.
b. Health insurance companies tend to lie about premiums.
c. Health insurance companies will put all the costs of the Affordable Care Act onto clients.
d. Because people know little of health care issues, insurers will offer fewer benefits than consumers expect.
e. All of these are moral hazard problems, not issues in adverse selection.

In bars the custom of wearing wedding rings serves to minimize:
a. moral hazard
b. adverse selection
c. asymmetric information
d. transaction costs
e. common property resources

The country of Ugaly has 10 million people, 7 million who are employed, 2 million who unemployed, and 1 million who are sick and unable to work. What is the labor force participation rate?
a. 60%
b. 70%
c. 80%
d. 90%
e. Can't tell without more information.

In determining whether or not to attend college, a potential student must consider all of the following EXCEPT:
a. Cost of housing in college.
b. Cost of meals in college.
c. Present value of lifetime earnings with a college degree.
d. Present value of lifetime earnings with a high school degree.
e. Opportunity cost of attending college.

Suppose that there is a big influx of low-skilled immigrants, from the country of Mabasco to Ugaly. What could NOT be an expected outcome of such event?
a. Ugaly's low-skilled workers will see a decrease in their wages.
b. All wages will decrease.
c. The country of Mabasco will suffer a brain drain.
d. Ugaly's high-skilled workers will see an increase in their wage.
e. There will be a decrease in the prices of some goods.

What is the cause of the single biggest problem facing Social Security over the decades to come?
a. Relatively speaking, there will be fewer workers compared to retired people.
b. FICA taxes have decreased so there will not be a sufficient amount of money in the system.
c. The benefits paid to retired people will no longer be sufficient due to inflation.
d. There are more workers now than there were decades ago when the system worked well.
e. More Americans in the Top 1% are hiding their income from the IRS and thus not contributing to Social Security.

What could be the most efficient and feasible idea to decrease labor-market discrimination against African-Americans, according to the research discussed in class?
a. Increase class sizes to provide more peer effects for minority students.
b. Subsidize companies that are already hiring many African-Americans.
c. Standardize the quality of education across all high schools.
d. Close the .01% of the most racist of all employers.
e. Nothing. The trend has shown constant improvement over time.

Gatherers of wild honey in Bangladesh earn 4 times as much as the average Bangladeshi. These extra earnings reflect a:
a. Return to additional human capital.
b. Return to investment in on-the-job training.
c. Compensating wage variation.
d. Comparative advantage.
e. Compensating wage differential

Michael would like to train pigs to swim. He estimates that he will earn $50,000 per year in this career. His alternative careers are as a fireman making $40,000 and a high school teacher making $30,000. What is Michael's economic rent as a swimming-pig instructor?
a. $50,000
b. $30,000
c. $20,000
d. $10,000
e. -$20,000

A Lorenz Curve that depicts perfect income equality would be a curve with which shape?
a. A line tracing the 45-degree line
b. A bell curve
c. A concave curve above the 45-degree line
d. A line at y=0.20
e. A convex curve below the 45-degree line

Andrea's grandfather tells her that he will give her $1000 a year from now if she can keep her grades up. If the interest rate is 5%, what is the value of that $1000 today? a. $1051
b. $1050
c. $952
d. $1005
e. $948

Which of the following leads to high earnings in sports and extraordinarily high rents for sport superstars?
a. The low risk of career-ending injury.
b. The slight differences in pay between very good and very, very good athletes.
c. Fixed output among sports and across players.
d. High training costs.
e. None of the above.

People are likely to promise to go on a diet tomorrow, but they can't forego that piece of blueberry pie right now, even though they know it' not healthy. This behavior illustrates:
a. irrationality.
b. hyperbolic discounting.
c. parabolic discounting.
d. metabolic discounting.
e. none of the above.

Suppose that society consists of Mike, Mary, and Andy. Mike has $100, Mary has $20, and Andy has $0. Consider taking $60 from Mike, giving $20 to Mary and $40 to Andy.
a. The original situation is not Pareto optimal because it is not equitable.
b. The intervention is Pareto improving because it makes Mary and Andy better off.
c. The intervention is not Pareto improving because it makes Mike worse off.
d. After the change the situation is Pareto optimal.
e. Both c and d

If the demand for a good in an increasing-cost industry rises, how will the price and the number of firms be affected?
a. Price increases, number of firms decreases because firms get bigger due to increasing costs.
b. Price increases, number of firms increases.
c. Price decreases, number of firms decreases because firms get bigger due to increasing costs.
d. Price decreases, number of firms increases.
e. Price increases, number of firms increases because of increasing costs.

Which of the following is NOT a true statement about market conditions under perfect competition?
a. Price = Long-Run Marginal Cost = minimum Long-Run Average Cost
b. Economic profits will always be zero in the long run.
c. Markets need outside help to move markets to equilibrium.
d. Each firm will produce as efficiently as possible.
e. Consumer surplus is maximized.

How does a monopolist determines its output level?
a. By setting MR=MC.
b. By setting P=MC.
c. Any output is good for monopoly, because makes long-run economic profits.
d. Government decides the output level when it gives the monopoly a patent.
e. By setting P>LRAC.

How do price and quantity in a monopoly differ from price and quantity in perfect competition?
a. Price is higher, quantity is higher
b. Price is higher, quantity is lower
c. Price is lower, quantity is higher
d. Price is lower, quantity is lower
e. Price is higher, quantity is the same

The innovation of curved shower-curtain rods will have what effect on the hotel/motel industry?
a. Increase long-run economic profits for the typical firm.
b. Reduce short-run economic profits.
c. Raise prices paid by consumers because this innovation will increase monopoly power.
d. Reduce prices paid by consumers.
e. Reduce long-run economic profits for the typical firm.

Jack runs a dorm cleaning service. He cleans 5 rooms for $40 each. He works 8 hours, and pays $20 for cleaning supplies. He could spend the 8 hours working for $10/hour. What is Jack's economic profit?
a. $200
b. $180
c. $100
d. $40
e. He does not have any economic profit.

Which of a pizza restaurant's costs is most likely to be fixed?
a. Hours of workers
b. Number of workers
c. Cheese and tomato paste
d. Cardboard pizza boxes
e. Rent on its building

A firm has fixed costs of $400 and total variable costs of $800 at 200 units of output. What is its ATC?
a. $6
b. $4
c. $2
d. $800
e. $1200

Todd's T-shirt Town makes t-shirts using capital and labor, both of which cost $8 per hour to rent or hire. If the marginal product of capital is 32 and the marginal product of labor is 20, how could Todd produce more at the same cost?
a. Use more capital and more labor.
b. Keep capital the same and increase labor.
c. Keep labor the same and increase capital.
d. Use less labor and increase capital.
e. Use less capital and increase labor.

There is a shortage of eggs due to avian flu in Texas. What could Daniel expect about his breakfast eggs' price?
a. People will stop eating eggs, and the price of eggs will remain the same.
b. People will stop eating eggs, and the price of eggs will drop.
c. The price of eggs will increase.
d. It is impossible to guess.
e. People will buy more pancakes, thus the price will remain the same.

The U.S. government gives farmers a price for their wheat 20 percent above its market value and sets this as the minimum price of wheat. This policy can be called a ____________ and leads to a _________.
a. Speculation; surplus
b. Price ceiling; shortage
c. Price floor; surplus
d. Speculation; shortage
e. Price ceiling; surplus

Due to a new trade agreement with Europe, more wheat flour enters the country. What happens to the quantity of rice flour sold?
a. Quantity of rice flour sold will remain the same.
b. Wheat flour's quantity has no relationship with rice flour's quantity.
c. Less rice flour sold as people economize on wheat flour.
d. More rice flour sold as people economize on wheat flour.
e. Less rice flour sold.

If the price elasticity of demand for radios is 0.20, a 50 percent drop in the price of radios will lead to:
a. The sale of 10 additional radios.
b. The sale of 1 additional radio.
c. The sale of 1 percent more radios than before.
d. The sale of 10 percent more radios than before.
e. The sale of 250 percent more radios than before.

The best example of a good that has an (almost) completely inelastic demand curve is:
a. Apples or bread.
b. Life-saving medicines.
c. Gasoline.
d. Graduate school.
e. College.

With a lower birth rate in America today than in the 1950s, what should happen to the price the tooth fairy pays per tooth lost by 5 and 6-year-olds?
a. Since kids' teeth are in better shape now due to fluorides in the water, she'll pay more.
b. Given the rise in income inequality, she'll pay more than in the 1950s.
c. She'll pay more due to a leftward shift in demand.
d. She'll pay more due to a leftward shift in supply.
e. Both b and d.

The method of economics in which you think about what you would do in a certain situation is called
a. other things equal
b. long run v. short run
c. sympathy
d. empathy
e. practical application

People and organizations must make choices because:
a. They must act rationally.
b. Of resource scarcity.
c. Of the law of diminishing returns.
d. Of ceteris paribus.
e. None of the above.

A simple economy produces only two goods: doughnuts and bongo drums. It takes 1 worker to produce 5 doughnuts per day and 1 worker to produce 1 drum. What is the opportunity cost of a drum?
a. 1/5 doughnut
b. 1/2 doughnut
c. 1 doughnut
d. 2 doughnuts
e. 5 doughnuts

The Law of Demand states that
a. as price increases, demand increases.
b. as price increases, quantity demanded increases.
c. as price increases, demand decreases.
d. as price increases, quantity demanded decreases.
e. none of these.

Assume that Wendy's doubles the price of Baconator. What happens to the demand curve for Baconators?
a. Shifts right
b. Shifts left
c. Changes its slope
d. Changes its curvature
e. Does not change

Which of the following is NOT a characteristic of a perfectly competitive market?
a. A horizontal industry demand curve
b. Homogeneous products
c. Firms are price takers
d. Easy entry and exit
e. A horizontal firm demand curve

When does the PPF change?
a. When the preferences of the consumers change.
b. When a new (more efficient) technology is introduced.
c. When the price of one good in question falls (in equilibrium).
d. None of the above.
e. All of the above.

Microeconomics does NOT deal with:
a. How much orange juice you should buy.
b. The price at which a producer should sell his output.
c. An increase in the rate of inflation.
d. How many workers a business is willing to hire and at what wage.
e. The vacations plan of a family.

What is true about consumer demand? It:
a. Depends on consumers' preferences.
b. Depends on technology.
c. Depends on the price.
d. Only a and c are true.
e. All of the above are true.

Most reviewers said that Catching Fire was better than its predecessor. What do you expect these reviews to do to the market for Catching Fire?
a. The ticket price rises, causing the quantity of tickets demanded to decrease.
b. The demand and the supply curves shift outward, causing equilibrium quantity to go up.
c. The supply curve shifts inward, causing equilibrium price and quantity to rise.
d. The demand and the supply curved are not affected.
e. The demand curve shifts outward, causing equilibrium price to go up.

Over the last 15 years, the market price of computers has fallen substantially while the equilibrium quantity of computers has increased substantially. This indicates that:
a. Demand and supply have increased by the same proportions.
b. Demand has increased more than supply has increased.
c. Supply has increased more than demand has increased.
d. Demand has decreased while supply has increased.
e. Technology has shifted out the production possibility frontier without changing supply and demand. x

An electronics company gives a 50% rebate on the price of its best product. What effect will you see on the demand side?
a. Increase in demand.
b. Decrease in demand.
c. Decrease in quantity demanded.
d. Increase in quantity demanded.
e. Depends on movement on the supply side.

Suppose the market price of corn is $5 a bushel, but the government decides to keep the price at $7. As a result:
a. Farmers will reduce planting corn until the market price is $7.
b. The government must purchase the surplus of corn to maintain the price.
c. Demand from consumers will increase over time until $7 is the market price.
d. There is a shortage of corn.
e. Supply curve will shift to the right. x

Consider the market for bread and butter, which are complements. Suppose that these markets are perfectly competitive and are in equilibrium. Suddenly, improved technology increases the supply of butter. Then:
a. The price of butter falls and the demand for bread increases.
b. The price of bread rises and the demand for bread increases.
c. Both the price of bread and the quantity demanded of bread decreases.
d. Both the price of bread and the demand for butter decrease.
e. None is correct.

In Austin the price elasticity of demand for used cars is 1/3. This means that a 25 percent increase in the quantity of used cars demanded was caused by the following change in the price of used cars:
a. Increase by approximately 75 percent.
b. Decrease by approximately 75 percent.
c. Decrease by approximately 25 percent.
d. Decrease by approximately 50 percent.
e. None of the above. x

In the holiday season, people "have to" buy toys and gifts for loved ones. People's demand curves become more __________; firms supplying such items will _______ prices to maximize profits.
a. Inelastic, decrease
b. Elastic, increase
c. Inelastic, increase
d. Elastic, decrease
e. None of the above.

Mr. Thomas spends his entire income on food and books. He always spends 3/4 of his income on food. His demand for books has an income elasticity of:
a. 0
b. 3/4
c. 1
d. Not enough information to answer the question.
e. None is correct.

Each day Peter must drink one cup of coffee. He pays $1 for a medium coffee at his local coffee shop. One day last week, the shop was closed for inventory, so Peter bought a medium coffee at Starbucks for $3. What do we know about Peter's consumer surplus at the local shop?
a. Nothing; just that he'd rather not drink Starbucks
b. It is less than $2
c. It is exactly $2
d. It is at least $2
e. None of the above

Dennis has a weekly income of $100. He currently consumes 15 grilled chicken sandwiches per week, at a price of $4 each, and 20 salads per week, at a price of $2 each. If the last sandwich and the last salad both added 40 units to Dennis's total utility, he:
a. Is making the utility-maximizing choice.
b. Should buy more sandwiches and fewer salads.
c. Should buy more salads and fewer sandwiches.
d. Should spend all the money on salads.
e. Obtains more additional utility per dollar from sandwiches than from salads.

Suppose that a farmer invested $1 million of his savings to open his farm. He could have deposited the money in a bank to earn $40,000 a year in interest. In addition, he had to give up a job that paid him $30,000 a year. At the end of the year, the revenue of the farm is $170,000, and materials cost $100,000. What is the economic profit of the farmer?
a. $70,000
b. $50,000
c. $30,000
d. $0
e. None of the above

Which of the following is a firm LEAST LIKELY to be able to adjust in the long run?
a. Machines
b. Labor
c. Electricity
d. Buildings/Structures
e. None of the above

If Boeing produces 5 jets per month, its long-run total cost is $9 million per month. If it produces 10 jets per month, its long-run total cost is $12 million per month. Which of the following statements is true?
a. Boeing exhibits economies of scale.
b. Boeing exhibits diseconomies of scale.
c. Boeing's long-run average total cost decreases as the quantity of output increases.
d. Boeing's long-run average total cost increases as the quantity of output increases.
e. a and c.

Which of the following statements about short-run cost curves must be true?
I. When the cost to produce another unit is less than the average of the previous units, average cost will decrease.
II. The MC curve passes through the minimum point on the AVC curve.
III. The MC curve passes through the minimum point on the ATC curve.
a. Only I must be true.
b. Only II must be true.
c. I and II must be true.
d. II and III must be true.
e. All of them are true.

Sometimes we walk into a restaurant for lunch and find it almost empty. The firm is losing money on the cost of running the restaurant. Why does it remain open?
a. Shutting down during lunch would not reduce the marginal cost.
b. Many of a restaurant's costs, such as the rent, kitchen equipment, tables, plates, are variable.
c. When the owner is deciding whether to serve lunch, only the variable costs are relevant.
d. The owner shuts down the restaurant at lunchtime only if the revenue fails to cover fixed costs.
e. None of the above.

For a perfectly competitive firm, the type of decision it has to make is different in the short run than in the long run. Which of the following is only a short-run decision?
a. The profit-maximizing level of output.
b. What price to charge consumers for the product to maximize profit.
c. How much to spend on advertising and sales promotion.
d. Whether or not to change its plant size.
e. Whether or not to enter or exit an industry. x x

There are two conditions: P = MC and P = minimum ATC. Which of the following statements about these two conditions must be true in a competitive industry?
I. The first condition is caused purely by profit maximization, and is true in both the short- and long run.
II. The second condition is partly caused by entry and exit in the long run.
III. The second condition won't necessarily be true in the short run.
a. Only I must be true.
b. Only II must be true.
c. Only I and II must be true.
d. Only I and III must be true.
e. All of them are true.

Lady Gaga has 2 million fans, and Miley has 1 million fans. Which of the following would be a Pareto improvement?
a. Lady Gaga has 1.5 million fans, Miley has 1.5 million fans.
b. Lady Gaga has 1.5 millions fans, Miley has 1 million fans.
c. Lady Gaga has 1 million fans, Miley has 2 million fans.
d. Lady Gaga has 2 million fans, Miley has 1.5 million fans.
e. Lady Gaga has 2,000,001 fans, Miley has 999,999 fans.

If a perfectly competitive industry becomes a monopoly and costs do not change, which of the following statements must be true?
a. The producer and society benefit, but consumers are harmed.
b. The producer and society are harmed, but consumers benefit.
c. The producer is harmed, but consumers and society benefit.
d. The producer benefits, but consumers and society are harmed.
e. The producer and consumers are harmed, therefore the society as whole is also harmed. x

The more perfectly a monopoly can price discriminate:
a. The smaller its output and the higher its profits.
b. The larger its output and the higher its profits.
c. The larger its output and the lower its profits.
d. The smaller its output and the lower its profits.
e. Does not affect the output and profits. x x

In the long run, a monopolistically competitive firm will produce at an output level where:
a. P = MC.
b. P >MC
c. P = MR.
d. P = ATC.
e. P > ATC.

Compared to our usual voting system, second-preference voting:
a. Leads to less-favored candidates being elected.
b. Violates rules of transitivity.
c. Elects any candidate who is the first choice of 51% of the voters.
d. Leads to more run-off elections.
e. None of the above.

In the U.S. health expenditures as a percent of GDP have _____; _____ pay(s) the highest portion of the costs.
a. decreased; patients
b. increased; government
c. remained roughly constant; private insurers
d. decreased; patients
e. increased; private insurers

What is NOT true about the Federal Insurance Contribution Act (FICA) tax?
a. FICA is used for a transfer payment.
b. FICA is a high-incidence tax.
c. FICA is a regressive tax.
d. The amount of your paycheck that is taxed is always under 10% of wages.
e. FICA is used to fund Medicare.

Using the "Rule of 70," how much time will it take Santa Claus to double his investment in Reindeer bonds if Reindeer bonds pay 5% monthly interest?
a. 5 months
b. 14 months
c. 65 months
d. 70 months
e. 350 months

Firm A currently has $7000 in an account which is earning an interest rate of 3%. The firm is considering using some of the money to invest in a project costing $2500 today to buy a machine which increases the profit by $500 next year, $1000 in two years, $1500 in three years and then completely disintegrates. Which of the following statements is true?
a. The present value of the project is higher than the cost, so the firm should invest in the project.
b. The present value of the project is lower than the cost, so the firm should not invest.
c. The present value of the project is just equal to the cost, so it does not matter whether firm invest or not.
d. We do not have enough information to decide whether the firm should invest or not.
e. An increase in interest rate will increase the probability that the firm chooses to invest. x

In general, what can we say about the elasticity of labor demand for low-skilled workers and for high-skilled workers?
a. The demand for low-skilled workers is perfectly elastic.
b. The demand for high-skilled workers is perfectly inelastic.
c. The demand for low-skilled workers is more elastic than for high-skilled workers.
d. The demand for low-skilled workers is less elastic than for high-skilled workers.
e. The demand for low-skilled workers has the same elasticity as for high-skilled workers.

Which of the following statements about the Gini coefficient is FALSE?
a. The Gini coefficient indicates the location of the Lorenz curve.
b. If the income distribution were equal, the Gini coefficient would be zero.
c. If the income distribution were totally unequal, the Gini coefficient would be 0.5.
d. The Gini coefficient rises when high-income people's earnings rise.
e. From 1970 to 2012, the Gini coefficient of U.S. increased.

Income inequality in the U.S. today is:
a. Low compared to France.
b. High compared to developing countries.
c. Slightly lower than in Sweden.
d. b and c.
e. None of the above.

The rate of return to a year of college today averages around:
a. 0 percent.
b. 0 percent.
c. 8 percent.
d. 12 percent.
e. 16 percent

The poverty rate in the U.S. today is around:
a. 10 percent.
b. 15 percent.
c. 20 percent.
d. 25 percent.
e. 30 percent.

In the United States over the past 40 years the labor-force participation rate of males has , and the labor-force participation rate of women has .
a. Fallen; risen.
b. Risen; stayed constant.
c. Stayed constant; stayed constant.
d. Stayed constant; fallen.
e. Stayed constant; risen.

Human capital theory predicts that:
a. People are unlikely to learn skills late in life.
b. At age 22 college grads often earn less than high-school grads.
c. At age 50 college grads will earn much more than high-school grads.
d. All of the above.
e. a and c.

The gap in the wages between men and women in the U.S. can be explained at least partly by differences in which of the following?
a. Experience.
b. Education
c. Occupational Choice.
d. All of the above.
e. a and c.

Consider the technological innovation of the internet and the ability to work remotely. We will find a______ fraction of ugly than of good-looking employees working remotely through the internet, and their wages will be ______ those of ugly employees who do not work remotely through the internet.
a. similar; the same as
b. higher; higher than
c. lower; higher than
d. higher; lower than
e. lower; lower than

If your professor earns $100,000 teaching introductory economics at UT, and he could teach elsewhere for only $80,000:
a. His true value to the University is $80,000.
b. His opportunity cost is $100,000.
c. He earns an economic rent of -$20,000.
d. He earns economic rent of $20,000.
e. Both b and d.

A free rider is a person who:
a. Avoids paying taxes by using tax code loopholes.
b. Produces goods at no cost
c. Receives the benefits of a good but avoids paying for it.
d. Will purchase products only when on sale.
e. None of the above

A public good is a good whose benefits are:
a. Diminished as it is consumed and whose benefits cannot be withheld from anyone.
b. Not diminished as it is consumed and whose benefits cannot be withheld from anyone.
c. Not diminished as it is consumed and whose benefits can be withheld from anyone.
d. Concentrated among a select few.
e. Enjoyed by everyone in society.

Which of the following is NOT an example of market failure?
a. More expensive rental apartments in West Campus than in Round Rock.
b. Collusion by OPEC.
c. Beautiful flowers on Gwen's lawn enjoyed by her neighbors.
d. Not knowing whether a car has been in an accident when car shopping.
e. All are examples of market failure.

A positive externality in honey means that market forces would cause the demand for honey to be _____ the socially optimal amount. So the government should _____ honey production.
a. less than; tax
b. less than; subsidize
c. the same as; neither tax nor subsidize
d. more than; tax
e. more than; subsidize

All of the following are goods for which property rights are hard to identify EXCEPT:
a. A river running along a field of corn.
b. The atmosphere over a field of corn.
c. Crows that eat the corn on the field.
d. The ozone layer.
e. A field of corn.

Pollution is an example of market failure because:
a. The equilibrium price is higher than the socially efficient price.
b. The equilibrium price is less than the socially efficient price.
c. Property rights are poorly distributed.
d. The market does not produce enough of the good.
e. Those who suffer from pollution are compensated outside the market.

What is NOT an example for the "tragedy of the commons"?
a. Overfishing on international waters.
b. Traffic jams.
c. Free printers/printing at the Economics Department for econ students.
d. Purchasing used cars.
e. All of them are good examples. x x x

A tax on plastic surgeons performing elective plastic surgery will be:
a. Borne by consumers if the demand is elastic.
b. Regressive.
c. Progressive.
d. Progressive only if borne by producers.
e. a and c. x

Which of the following statements is FALSE?
a. The estate tax accounts for more government revenue than the individual income tax.
b. Social insurance taxes account for the largest share of federal revenue.
c. Compared to other developed countries, the U.S. government is relatively small.
d. The estate tax is progressive.
e. a and b. x

In North, it takes 50 labor hours to produce cloth and 100 hours to produce grain. In South, it takes 200 labor hours to produce cloth and 200 hours to produce grain. Which of the following statements is true?
a. South has an absolute advantage in the production of grain.
b. South has an absolute advantage in the production of both cloth and grain.
c. North has a comparative advantage in the production of cloth.
d. North should produce grain.
e. South has comparative advantage in the production of cloth. x

France has a comparative advantage over the United States in producing fine wines. If France and the United States trade:
a. Fine wine prices will rise in France.
b. Everyone will benefit.
c. U. S. producers of fine wine will increase production.
d. French producers will seek tariff protection.
e. U. S .consumers will be hurt.

Which of the following statements is TRUE?
a. Free trade benefits a country when it exports but harms it when it imports.
b. Trade restrictions help producers in the protected industry.
c. Tariffs and quotas make the average person in society better off.
d. A country cannot have a comparative advantage in producing a good if it doesn't have an absolute advantage in it.
e. Trade among nations is based on absolute advantage.

A trade quota on imports ________ consumers and ________ producers and their employees.
a. hurts; helps
b. helps; hurts
c. hurts; hurts
d. hurts; has no effect on
e. has no effect on; helps

You get to the concert and find your ticket is lost, but other tickets are available for purchase at the same price. If you are rational you will:
a. Buy a replacement ticket.
b. Go home and do something else.
c. Buy a ticket for a cheaper seat.
d. Buy a ticket for a more expensive seat.
e. Impose externalities on your neighbors.

Somebody being sick and vomiting in the water next to the snorkeling boat and attracting tropical fish is an example of a:
a. Pareto improvement.
b. Pareto inferiorum.
c. Positive externality.
d. Negative externality.
e. Negative internality.

A 50" flat-screen television was priced at $8,000 in 2004. In 2013 a good 50" plasma television cost only a bit more than $700. What is the possible reason?
a. Increased competition has driven the price down.
b. Marginal cost has risen by less than average variable cost has decreased.
c. As companies produce more, they can take advantage of economies of scale.
d. The short-run average cost curve is decreasing.
e. a and c.

Which of the following does NOT explain high salaries of professional athletes?
a. Risk of injury.
b. Revenue sharing by athletic teams.
c. Long periods of training
d. Televising of pro sports
e. b and c.

Economics is a discipline that is especially concerned with:
a. Abundant resources.
b. Scarce resources.
c. The geographic spread of resources.
d. Natural resources.
e. None of the above.

Which of the following is a story about the Law of Demand?
a. Turkey prices rise around Thanksgiving.
b. Airline tickets are harder to find around Christmas.
c. As the price of gasoline falls, more people drive to visit Grandmother.
d. The price of chicken decreased as turkey prices rose over Thanksgiving.
e. All of the above.

Which of the following will cause a shift in the supply curve of sofa beds?
a. A change in the price of apartments
b. A change in the price of mattresses used in sofa beds.
c. A change in the price of sofa beds
d. A 10% rebate (paid by producers) on the selling price of sofa beds
e. c and d

How do the equilibrium price and quantity of airline tickets change if the wages of its pilots increase?
a. Price increases, quantity increases
b. Price decreases, quantity increases
c. Price increases, quantity change is ambiguous
d. Price decreases, quantity decreases
e. Price increases, quantity decreases

How do the equilibrium price and quantity of automobiles change after the price consumers pay for gasoline decreases while the wages of auto workers increase at the same time?
a. Price increases, quantity increases
b. Price decreases, quantity increases
c. Price increases, quantity change is ambiguous
d. Price decreases, quantity decreases
e. Price increases, quantity decreases

$6 is an effective price floor for a specific good. Which of the following could possibly be an effective price ceiling for this good?
a. $3
b. $8
c. $10
d. b and c
e. none of the above

Arbitrage equalizes prices across _________; speculation equalizes prices across ________.
a. complements; substitute products.
b. substitutes; complement products.
c. time; space.
d. space; time.
e. b and c.

Which of the following goods is most likely to have a very inelastic demand?
a. Pepperoni pizzas
b. Headphones
c. iPhones
d. Life-saving drugs
e. Cigarettes

When the price of grapefruit increases from $1 to $3, the quantity demanded decreases from 150 to 50. What is the price elasticity of demand? (Use the mid-point method)
a. 0.5
b. 1
c. 1.5
d. 2
e. 3

When the price of Six Flags tickets rises 10 percent, Six Flags' revenue decreases by 5 percent. It is certain that:
a. the demand is inelastic.
b. the demand is elastic.
c. Six Flags tickets are a necessity.
d. Six Flags tickets are an inferior good.
e. Both a and c.

Snow-kayaking has an income elasticity of +2. Everyone who goes snow-kayaking in the holiday season gets paid $100 to encourage more people to go to winter sports resorts. Which is TRUE?
a. $100 will mostly benefit the rich.
b. $100 will mostly benefit the poor.
c. $100 will benefit all income groups equally.
d. $100 will mostly benefit middle-income households.
e. None of the above.

A necessity is a good for which spending ____ when income doubles.
a. drops
b. rises, but does not double
c. doubles
d. more than doubles
e. in total dollars by poor people increases the most

Even if the price of chocolates were $70, Demetria would still buy one piece. After eating the first piece, she is willing to pay $30 for another one. If the equilibrium price of chocolate is $30, what is her consumer surplus?
a. $30
b. $40
c. $70
d. $100
e. $120

In the short run:
a. At least one factor is fixed, hence the firm cannot adjust its scale easily.
b. There is no entry or exit.
c. Firms can produce zero output.
d. a and b.
e. All of the above.

Ed is a freelance writer who could work for a newspaper at $25,000 a year but instead works for himself and has $41,000 a year in sales. His only business expenses are $1,000 for writing materials and $12,000 for renting an office. Ed's economic profit from working as a freelance writer is:
a. $40,000.
b. $28,000.
c. $16,000.
d. $15,000.
e. $ 3,000.

The economic significance of the minimum point on the AVC curve is that:
a. it is the profit-maximizing level of output.
b. it is the selling price of output.
c. the firm is indifferent between producing and shutting down.
d. if the firm produces one more unit, its AVC will be less than MC.
e. it shows the amount of total cost.

In perfect competition firms are price takers. What does this mean?
a. The government announces the price, and firms take it as given.
b. Price is determined outside of the market and given to firms.
c. No firm has the power to affect the price.
d. It is illegal for firms to change the price of their merchandise.
e. b and d.

A new producer enters the market for organic carrots by building a more efficient farm. This will lead to a(n) ____ in the equilibrium price and a(n) _____ in the number of organic carrot farms.
a. rise; drop
b. rise; rise
c. drop; drop
d. drop; ambiguous effect
e. ambiguous effect; rise

Abel and Becky each offer a suggestion for dividing up the vegetables from their garden. After discussing their options, they both agree that Abel's suggestion is better. The All-Knowing Deity gives them a third suggestion, which they agree is best. Which of the following do we know to be true?
a. Abel's suggestion is Pareto inferior.
b. Becky's suggestion is Pareto inferior.
c. Abel's suggestion is a Pareto optimum.
d. Becky's suggestion is a Pareto optimum.
e. Both a and b.

A monopoly will shut down in the long run if:
a. market demand is below minimum ATC.
b. P>minimum ATC.
c. P does not equal MC.
d. P>MR.
e. none of the above.

Monopolies generally offer consumers ____ and ____ than competitive firms.
a. lower output; lower prices
b. lower output; higher prices
c. higher output; lower prices
d. higher output; higher prices
e. Monopolists offer roughly the same price as competitive firms

Germanwings adds €8 to a ticket price for each checked bag. This could be:
a. cost-based price discrimination.
b. demand-based price discrimination, if those who check bags have a more elastic demand.
c. demand-based price discrimination, if those who check bags have a less elastic demand.
d. a and b
e. a and c

In the long run, monopolistically competitive firms earn zero economic profits because:
a. entry of new firms eliminates profits.
b. firms do not equate marginal cost and marginal revenue in the long run.
c. there is only one seller in the market.
d. each firm produces a standardized product.
e. each firm produces a small share of total market output.

All of the following are examples of barriers to entry EXCEPT:
a. Economies of scale.
b. Reputations of established firms.
c. Special deals with distributors.
d. High prices.
e. Patents.

A bond promises to "make your money double in 10 years." The average interest rate is around:
a.2%.
b.5%.
c.7%.
d.10.
e.12%.

When calculating present value of a sum to be obtained in the future, the ________, the _________ is the present value.
a. higher is the rate of substitution; lower
b. lower is the discount rate; higher
c. higher is the discount rate; higher
d. lower is the rate of substitution; lower
e. higher is the rate of substitution; higher

A firm's demand for labor is derived from:
a. consumers' demand for the product.
b. the supply of labor and the price of the product.
c. the productivity of labor relative to the productivity of capital.
d. population size and the degree of price discrimination.
e. the average product of the last worker hired.

Vexcon Exterminators fight termites using chemical X or chemical Y. The marginal product of one liter of X is 1 square foot killed, while that of Y is 5 square feet killed. The firm can buy X at $1 and Y at $2 per liter. Which of the following is TRUE?
a. The marginal revenue product of X equals its price.
b. The marginal product of Y equals its price.
c. Vexcon should use more of X, less of Y.
d. Vexcon should use more of Y, less of X.
e. b and d.

The return to an input that is in fixed supply is:
a. zero.
b. equal to the interest rate.
c. economic profit.
d. producer surplus.
e. economic rent.

Union mine workers negotiate higher wages. What is the effect on the market for mine workers?
a. Create a shortage of workers.
b. Cause employers to provide more fringe benefits to workers.
c. Shift the supply curve out because wages have increased.
d. Reduce the equilibrium quantity of workers employed.
e. Shift the demand curve out because workers will be more productive.

Which age group in the United States earns the highest wages on average?
a. 15-25
b. 25-40
c. 40-55
d. 55-65
e. 65+

Investment in human capital is similar to investment in a machine, EXCEPT that:
a. its return is always positive.
b. it is less risky, since the machine might break down.
c. it is more risky, since the payout period is shorter.
d. you cannot sell the investment once it is made.
e. b and d.

In the last 20 years, the Gini coefficient for the United States has:
a. remained constant.
b. increased steadily.
c. decreased steadily.
d. fluctuated a lot.
e. decreased for about 15 years and then increased.

In Hammerland each 10% of families receives 10% of the total national income. What is the shape of the Lorenz curve in Hammerland?
a. a diagonal line
b. a vertical line
c. a convex curve
d. a concave curve
e. a curve that is first convex, then concave

The largest part of the opportunity cost of college education is:
a. tuition.
b. cost of living during college.
c. expenses on school activities.
d. foregone earnings.
e. a and b.

Vincent charges a higher babysitting fee than other teenagers because he has taken special training in CPR. How can economics explain his high fees?
a. He gets a compensating wage differential.
b. He earns economic rent.
c. He has invested more in human capital.
d. His income effect outweighs his substitution effect.
e. He must have higher opportunity cost.

Experts predict that around 2035 the Social Security System will go broke. Which of the following is NOT a possible solution to the predicted problem?
a. Raise the tax rate from 7.65% to 11%.
b. Raise the retirement age by 1 year every 6 years until 2039.
c. Privatize the Social Security System.
d. Encourage reductions in fertility.
e. All of the above are solutions.

Hispanics' earnings are less than those of non-Hispanic whites because of:
a. Hispanic workers' relatively lower educational attainment.
b. huge Hispanic immigration to selected areas.
c. language problems,
d. gender discrimination.
e. All but d

The wage premium of men over women is much smaller than originally calculated, after adjustments are made for:
a. the fact that more men are hired than women.
b. fertility decisions and experience.
c. the number of immigrant workers.
d. education.
e. the prevailing wage rate and inflation.

The top-earning baseball player earns more than the top-earning calf-roper because:
a. calf-roping is less dangerous than baseball.
b. it is easier to broadcast baseball than calf-roping.
c. there is a world-wide supply of calf-ropers, but not of baseball players.
d. calf-roping teams have more members, so none can earn as much as a baseball player.
e. more people are interested in baseball than in calf-roping.

People who are in worse health are likely to purchase more comprehensive healthcare than those who consider themselves relatively healthy. This is an example of:
a. adverse selection.
b. moral hazard.
c. incomplete markets.
d. the tragedy of the commons.
e. a negative externality.

Which of the following is LEAST typical of a public good?
a. Fresh air
b. National defense
c. The clock on the main building
d. A busy highway
e. News on an publicly-open website

Which of the following is an example of a market failure?
a. A children's teddy bear poses a safety hazard.
b. The next-door-neighbor of a vocal coach is annoyed by the constant singing.
c. The pet store finds it difficult to keep a steady supply of a rare dog breed.
d. Someone sells a UT sweatshirt on Craigslist.
e. b and c

When a negative externality is present, we will see:
a. too much production of the good at a price that is too low.
b. the tragedy of the commons in full effect.
c. non-excludable goods taking the place of the good being produced.
d. goods with positive externalities being produced to bring the market into equilibrium.
e. a and c

When dealing with consumption externalities, the market equilibrium can be moved closer to the social equilibrium by:
a. taxing negative externalities and subsidizing positive externalities.
b. taxing both positive and negative externalities.
c. subsidizing both positive and negative externalities.
d. subsidizing negative externalities and taxing positive externalities.
e. None of the above, because government has no corrective policy regarding consumption externalities.

Which of the following is NOT a market-based approach to pollution control?
a. A tax on pollution
b. Cap and trade permits
c. Outlawing a specific type of pollution
d. Subsidizing green technologies
e. Instituting a deposit-refund system

The government imposes a tax of $2 dollars on suppliers of the good. What are the total tax revenue (TTR) and the excess burden (EB) of the tax?
a. No revenue, EB=2.
b. TTR=4, no excess burden.
c. TTR=8, EB=4.
d. TTR=6, EB=2.
e. TTR=4, EB=1.

The federal personal income tax in United States has a(n) :
a. decreasing marginal tax rate.
b. decreasing average tax rate.
c. constant marginal tax rate.
d. constant average tax rate.
e. increasing marginal tax rate.

Which of the following statement is NOT correct?
a. The Federal government gains revenue mainly from income and Social Security taxes.
b. State sales taxes are regressive.
c. Property taxes are one of the main resources that help local governments balance their budgets.
d. The Federal government provides about one-fourth of state and local government revenue.
e. The top MTR of personal income taxes is among the highest in rich countries

The demand for cigarettes is very inelastic. When the government increases the sales tax on cigarettes, we can infer that ___.
a. the incidence of the tax will be mainly on retailers.
b. the incidence of the tax will be mainly on consumers.
c. the excess burden of the tax will decrease.
d. the excess burden of the tax will increase, which increases tax revenue.
e. the lost consumer surplus will be fully transferred to the government.

International trade is beneficial when:
a. each country has a comparative advantage over all other countries
b. the absolute costs of production differ in different countries
c. the absolute prices of goods differ in different countries
d. developed countries are generally more productive than developing countries
e. relative productivity differs across countries

Which of the following is NOT an example of economic barriers to international trade?
a. The high tax that the European Union imposes on the import of electronic products
b. The voluntary restraints the U.S. sets for Japanese car producers
c. China offering export subsidies for some industries
d. USDA requiring that the amount of sugar imported each year should not exceed 1.68 million tons
e. The Gulf War reducing world oil trade

If Country A is an inefficient producer of a good and imposes a tariff on imports from Country B that has many efficient plants:
a. Country A's imports from B will always drop.
b. Country A will begin exporting the product to Country B.
c. Country B will begin exporting from its most efficient plants.
d. Country B will begin producing in its least efficient plants because prices in A will be higher.
e. There will be no change; the elasticity of demand in A offsets the elasticity of supply in B.

If California imposed a tax on retail sales of pornography, it would produce ____ than a tax on production of pornography in California, where most commercial porn videos are now produced.
a. a larger excess burden
b. the same excess burden
c. a smaller excess burden
d. a larger fixed cost
e. a smaller fixed cost

Humanities professors might be paid less than economics professors for all EXCEPT which of the following reasons?
a. Economics professors enjoy their work less.
b. Economics professors get to appear on TV and travel to more European conferences.
c. There is typically a shortage of economics professors.
d. Economics professors have no chance of getting a high-paying university administrative job.
e. All of the above are possible reasons why humanities professors are paid less.