question
True or False: A country's comparative advantage is determined by an assessment of its opportunity costs of production relative to the opportunity costs of other countries.
answer
True
question
True or False: When the price elasticity of demand for a product is inelastic, that product is likely to have few close substitutes.
answer
True
question
True or False: A firm should (at least temporarily) shut down its production facility if variable costs are greater than revenues.
answer
True
question
True or False: An increase in price will cause a decrease in demand. This is the law of demand.
answer
False
question
True or False: An increase in consumer income will increase the demand for products and services that are income normal.
answer
True
question
True or False: If the government sets a price ceiling below the equilibrium market price, then we can expect that there will be shortages of the good (i.e., quantity demanded will exceed quantity supplied).
answer
True
question
True or False: In a market economy, most economic decisions are made by central governments.
answer
False
question
True or False: If price exceeds marginal cost at a competitive firm's current level of output, then the firm can increase profit if it increases the price it charges.
answer
False
question
True or False: A fire that destroys a food processing facility will likely result in shortages, thus causing an increase in the price of those food products.
answer
True
question
True or False: The demand for gasoline is rising. A possible cause is that commuters are switching from driving to public transportation.
answer
False
question
True or False: Suppose the price of raw materials and other inputs used to produce computers increases. We should expect that the equilibrium market price of computers will increase and the quantity of computers sold will decrease.
answer
True
question
True or False: Suppose a new government report indicates that eating broccoli reduces the incidence of facial acne. We can expect that the equilibrium price of broccoli would increase and the equilibrium quantity ofbroccoli sold would decrease.
answer
False
question
True or False: Suppose medical studies reveal that long distance running reduces the chance of having a heart attack. We can expect that the equilibrium price of running shoes would increase and the equilibrium quantity of running shoes sold would also increase.
answer
True
question
True or False: At an all-you-can eat buffet, a person will stop eating when marginal utility is equal to zero
answer
True
question
True or False: In perfectly competitive markets, no firm has the ability to affect the market price.
answer
True
question
True or False: Product differentiation gives a firm control over prices.
answer
True
question
True or False: In the long run, a typical firm in a monopolistically competitive industry will likely earn little to no economic profit.
answer
True
question
True or False: When demand is downward sloping, consumers who buy a good at the market equilibrium price will receive consumer surplus from the purchase of the good.
answer
True
question
True or False: Universities are engaging in price discrimination when they charge different levels of tuition to in-state and out-state students.
answer
True
question
True or False: A positive externality is an external benefit that accrues to others outside of the market, while a negative externality is an external cost that accrues to others outside of the market.
answer
True
question
True or False: The prisoners' dilemma refers to a situation in which players face strong incentives not to cooperate with each other.
answer
True
question
True or False: A dominant strategy is a strategy that always makes both players as well-off collectively as possible.
answer
False
question
True or False: One characteristic of oligopoly is that firms in an industry will usually have to consider the reactions of competitors when they formulate strategy.
answer
True
question
True or False: If a market generates a negative externality, then an appropriately designed tax can move the market toward a more efficient outcome.
answer
True
question
True or False: Private goods are characterized by the ability to exclude non-payers and the fact that consumption of the good precludes others from consuming it.
answer
True
question
True or False: The free rider problem typically results in a production of output that is greater than the social optimal quantity.
answer
False
question
True or False: Providing government subsidies for higher education could be both economically efficient and socially equitable if higher education results in positive externalities.
answer
True
question
True or False: The social cost curve lies above the private supply curve for the producer in cases of negative externalities.
answer
True
question
True or False: A network good is one with which the benefit to the user rises if there is a small number of other users of the good.
answer
False
question
True or False: A customer leaving a network imposes a cost on users of the network.
answer
True
question
If you were not studying economics, you could be doing one of the following: sleeping in (which you value at $5), playing cards with your friends (which you value at $10), or working (you would have earned an extra $8). The opportunity cost of studying economics is therefore
A. $5
B. $8
C. $10
D. $23
E. None of the above
A. $5
B. $8
C. $10
D. $23
E. None of the above
answer
C. $10
question
Opportunity costs exist because:
A. using resources for one activity means that their use elsewhere must be given up.
B. sellers are unwilling to give up their product without a price.
C. there are opportunities to find ways to reduce costs.
D. buyers always have an opportunity to go to another seller.
E. money is an ineffective medium of exchange.
A. using resources for one activity means that their use elsewhere must be given up.
B. sellers are unwilling to give up their product without a price.
C. there are opportunities to find ways to reduce costs.
D. buyers always have an opportunity to go to another seller.
E. money is an ineffective medium of exchange.
answer
A. using resources for one activity means that their use elsewhere must be given up.
question
"Production efficiency" is described as
A. goods and services that are produced using the fewest resources possible.
B. the mix of goods and services produced being just what society desires.
C. one country having a lower opportunity cost of producing a good than another country.
D. one country being able to produce more of a good than another country.
A. goods and services that are produced using the fewest resources possible.
B. the mix of goods and services produced being just what society desires.
C. one country having a lower opportunity cost of producing a good than another country.
D. one country being able to produce more of a good than another country.
answer
A. goods and services that are produced using the fewest resources possible.
question
Suppose the government could stimulate spending in one of the following expenditure categories. In which category would the spending increase contribute most to an expansion of the country's production possibilities frontier?
A. Government purchases
B. Net exports
C. Social goods
D. Consumption goods
E. Capital goods
A. Government purchases
B. Net exports
C. Social goods
D. Consumption goods
E. Capital goods
answer
E. Capital goods
question
Which of these is an example of consumers creating a negative externality?
A. Air traffic from a nearby airport reduces property values.
B. A fast-food restaurant fails to provide medical benefits to employees.
C. A tanker ship leaks oil into a harbor.
D. Litter is found in an area around a fast-food restaurant.
E. None of the above.
A. Air traffic from a nearby airport reduces property values.
B. A fast-food restaurant fails to provide medical benefits to employees.
C. A tanker ship leaks oil into a harbor.
D. Litter is found in an area around a fast-food restaurant.
E. None of the above.
answer
D. Litter is found in an area around a fast-food restaurant
question
If an individual's primary objective is to maximize his or her salary, then which action would NOT be considered a rational decision?
A. Accepting a boring job that pays $60,000 per year over a fun job that pays $40,000 per year.
B. Accepting a fun job that pays $70,000 per year over a boring job that pays $60,000 per year.
C. Accepting a fun job that pays $40,000 per year over a boring job that pays $60,000 per year.
D. Accepting a boring job that pays $95,000 per year over a fun job that pays $90,000 per year.
A. Accepting a boring job that pays $60,000 per year over a fun job that pays $40,000 per year.
B. Accepting a fun job that pays $70,000 per year over a boring job that pays $60,000 per year.
C. Accepting a fun job that pays $40,000 per year over a boring job that pays $60,000 per year.
D. Accepting a boring job that pays $95,000 per year over a fun job that pays $90,000 per year.
answer
C. Accepting a fun job that pays $40,000 per year over a boring job that pays $60,000 per year.
question
If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely _____ goods.
A. inferior
B. luxury
C.substitute
D. complementary
A. inferior
B. luxury
C.substitute
D. complementary
answer
D. complementary
question
____ The reason economists often consider monopoly socially undesirable is because the monopolist
A. always earns excessive profits.
B. can charge any price he wants.
C. produces less than the socially efficient amount.
D. can always treat its customers with complete indifference.
A. always earns excessive profits.
B. can charge any price he wants.
C. produces less than the socially efficient amount.
D. can always treat its customers with complete indifference.
answer
C. produces less than the socially efficient amount.
question
A firm seeking to maximize profits will increase the amount of output it produces when marginal revenue is greater than marginal cost.
A. This is true for perfectly competitive firms only.
B. This is true for monopolistic firms only.
C. This is true for perfectly competitive and monopolistic firms, but not for oligopolies.
D. This is true for all firms regardless of market structure.
E. None of the above.
A. This is true for perfectly competitive firms only.
B. This is true for monopolistic firms only.
C. This is true for perfectly competitive and monopolistic firms, but not for oligopolies.
D. This is true for all firms regardless of market structure.
E. None of the above.
answer
D. This is true for all firms regardless of market structure.
question
Other things being equal, a price-discriminating firm will charge less to the customers who
A. are the most elastic in their demand for a product.
B. have the least elastic demand for its product.
C. have the lowest incomes.
D. are the most rational in making their decisions.
A. are the most elastic in their demand for a product.
B. have the least elastic demand for its product.
C. have the lowest incomes.
D. are the most rational in making their decisions.
answer
A. are the most elastic in their demand for a product.
question
____ Suppose the government sets the price for water and the market for water is always experiencing shortages. One can infer that
A. the government has established a price ceiling for water.
B. the government is trying to protect the incomes of water suppliers.
C. the quantity of water supplied exceeds the quantity of water demanded.
D. the government has established a price floor for water.
A. the government has established a price ceiling for water.
B. the government is trying to protect the incomes of water suppliers.
C. the quantity of water supplied exceeds the quantity of water demanded.
D. the government has established a price floor for water.
answer
A. the government has established a price ceiling for water.
question
____ The reason monopolistic competitive firms have difficulty maintaining a profit in the long run is that
A. buyers refuse to pay higher prices over time.
B. costs tend to increase as production rises.
C. ease of entry into the market encourages new firms to enter and force down the price.
D. income taxes paid by the firms rise as their profits rise.
A. buyers refuse to pay higher prices over time.
B. costs tend to increase as production rises.
C. ease of entry into the market encourages new firms to enter and force down the price.
D. income taxes paid by the firms rise as their profits rise.
answer
C. ease of entry into the market encourages new firms to enter and force down the price.
question
Target executives believe that if they raise prices, then customers will switch to shopping at Walmart across the street. However, if they decrease their prices, then Walmart will respond by decreasing their own prices, with no customers switching from Walmart to Target. This scenario implies that
A. Target should decrease its prices in an effort to drive Walmart out of business.
B. prices charged by both retailers will be relatively stable.
C. both retailers are locked in destructive competition. D. Target should not have a pricing strategy.
A. Target should decrease its prices in an effort to drive Walmart out of business.
B. prices charged by both retailers will be relatively stable.
C. both retailers are locked in destructive competition. D. Target should not have a pricing strategy.
answer
B. prices charged by both retailers will be relatively stable.
question
Which method can help in obtaining a welfare improvement if negative externalities exist?
A. Regulation.
B. Appropriately designed taxes.
C. Assigning property rights and permitting bargaining.
D. All of the above could work.
E. None of the above will improve the situation ofnegative externalities.
A. Regulation.
B. Appropriately designed taxes.
C. Assigning property rights and permitting bargaining.
D. All of the above could work.
E. None of the above will improve the situation ofnegative externalities.
answer
D. All of the above could work.
question
Home football games at your college are free for students and most of the students like to go to the game. What is the non-monetary cost for you to go to the game?
A. Gas that you will need for your car.
B. Money you paid for body painting and artificial hair. C. The outrageous price you had to pay for hot dogs and soda.
D. The 2 hours you waited in the line to pick up a ticket. E. The price you paid for your brother's ticket.
A. Gas that you will need for your car.
B. Money you paid for body painting and artificial hair. C. The outrageous price you had to pay for hot dogs and soda.
D. The 2 hours you waited in the line to pick up a ticket. E. The price you paid for your brother's ticket.
answer
D. The 2hours you waited in the line to pick up a ticket.
question
Which characteristic does monopolistic competition NOT have in common with perfect competition?
A. Entry and exit are easy.
B. Products of individual firms are different.
C. Individual firms earn normal profits in the long run. D. Each firm has an insignificantly small market share.
E. None of the above.
A. Entry and exit are easy.
B. Products of individual firms are different.
C. Individual firms earn normal profits in the long run. D. Each firm has an insignificantly small market share.
E. None of the above.
answer
B. Products of individual firms are different.
question
The "dilemma" in the Prisoner's Dilemma is that
A. one of the players cannot get the best outcome.
B. both players would be better off by cooperating, but not cooperating is a dominant strategy.
C. both players would be better off by not cooperating, but cooperating is a dominant strategy.
D. the player with first-mover advantage always gets the better outcome.
A. one of the players cannot get the best outcome.
B. both players would be better off by cooperating, but not cooperating is a dominant strategy.
C. both players would be better off by not cooperating, but cooperating is a dominant strategy.
D. the player with first-mover advantage always gets the better outcome.
answer
B. both players would be better off by cooperating, but not cooperating is a dominant strategy.
question
The live band that plays nearby makes it difficult for patrons of a restaurant to hold a conversation. This is an example of
A. a negative externality.
B. a positive externality.
C. the Coase theorem.
D. environmental mugging.
A. a negative externality.
B. a positive externality.
C. the Coase theorem.
D. environmental mugging.
answer
A. a negative externality.
question
Which statement is TRUE regarding the Coase theorem?
A. The final distribution of income is independent of the initial distribution of property rights.
B. The Coase theorem applies only to positive externalities.
C. There are few real-world applications of the Coase theorem.
D. If transactions costs are small, the outcome is efficient regardless of how property rights are distributed.
A. The final distribution of income is independent of the initial distribution of property rights.
B. The Coase theorem applies only to positive externalities.
C. There are few real-world applications of the Coase theorem.
D. If transactions costs are small, the outcome is efficient regardless of how property rights are distributed.
answer
D. If transactions costs are small, the outcome is efficient regardless of how property rights are distributed.
question
Which of these is a policy idea that the government could use to correct a negative externality?
A. Encouraging the over-allocation of resources of production that create negative externalities.
B. Imposing a fee on waste from the production of goods that create negative externalities.
C. Providing government subsidies to producers of goods that create negative externalities.
D. Providing financing of the additional production of goods that create negative externalities.
A. Encouraging the over-allocation of resources of production that create negative externalities.
B. Imposing a fee on waste from the production of goods that create negative externalities.
C. Providing government subsidies to producers of goods that create negative externalities.
D. Providing financing of the additional production of goods that create negative externalities.
answer
B. Imposing a fee on waste from the production of goods that create negative externalities.
question
Which statement describes a public good?
A. It is rival in consumption and excludable.
B. It is non-rival in consumption and excludable.
C. It is rival in consumption and non-excludable.
D. It is nonrival in consumption and nonexcludable.
A. It is rival in consumption and excludable.
B. It is non-rival in consumption and excludable.
C. It is rival in consumption and non-excludable.
D. It is nonrival in consumption and nonexcludable.
answer
D. It is non-rival in consumption and non-excludable.
question
Which statement describes a good that is characterized as a tragedy of the commons?
A. It is rival in consumption and excludable.
B. It is non-rival in consumption and excludable.
C. It is rival in consumption and non-excludable.
D. It is nonrival in consumption and nonexcludable.
A. It is rival in consumption and excludable.
B. It is non-rival in consumption and excludable.
C. It is rival in consumption and non-excludable.
D. It is nonrival in consumption and nonexcludable.
answer
C. It is rival in consumption and nonexcludable.
question
Movies are typically only shown in theaters for months before they are released on online streaming sites at a lower price. This is an example of
A. a teaser strategy.
B. a switching cost.
C. a lock-in strategy.
D. an intertemporal pricing strategy.
A. a teaser strategy.
B. a switching cost.
C. a lock-in strategy.
D. an intertemporal pricing strategy.
answer
D. an intertemporal pricing strategy
question
AT&T offers high-speed Internet service to new subscribers for $29.99 per month for the first six months and then raises the price to $49.99 per month. This offer is an example of
A. a teaser strategy.
B. a switching cost.
C. a lock-in strategy.
D. an intertemporal pricing strategy.
A. a teaser strategy.
B. a switching cost.
C. a lock-in strategy.
D. an intertemporal pricing strategy.
answer
A. a teaser strategy.
question
Consider the market for breakfast cereal. Which of the following will cause higher prices and a greater quantity of breakfast cereal exchanged?
A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc) increase.
B. There is an increase in the number of firms selling breakfast cereal.
C. A medical report shows the added health benefits of eating breakfast every morning.
D. A medical report raises concerns about the health risks of consuming processed cereal products. E. None of the above.
A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc) increase.
B. There is an increase in the number of firms selling breakfast cereal.
C. A medical report shows the added health benefits of eating breakfast every morning.
D. A medical report raises concerns about the health risks of consuming processed cereal products. E. None of the above.
answer
C. A medical report shows the added health benefits of eating breakfast every morning.
question
Consider the market for breakfast cereal. Which of the following will cause lower prices and a greater quantity of breakfast cereal exchanged?
A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc) increase.
B. There is an increase in the number of firms selling breakfast cereal.
C. A medical report shows the added health benefits of eating breakfast every morning.
D. A medical report raises concerns about the health risks of consuming processed cereal products.
E. None of the above.
A. The prices of inputs like refined sugar and cereal crops (wheat, corn, etc) increase.
B. There is an increase in the number of firms selling breakfast cereal.
C. A medical report shows the added health benefits of eating breakfast every morning.
D. A medical report raises concerns about the health risks of consuming processed cereal products.
E. None of the above.
answer
B. There is an increase in the number of firms selling breakfast cereal.
question
Consider the market for wool sweaters. Which of the following will cause higher prices and a greater quantity of wool sweaters exchanged?
A. Consumers expect the weather to be colder than normal during the next several weeks.
B. Producers of cotton sweatshirts reduce the prices of their products.
C. A disease significantly reduces the sheep population (wool comes from sheep).
D. Apparel manufacturers develop a more efficient way of processing wool fabrics.
E. None of the above.
A. Consumers expect the weather to be colder than normal during the next several weeks.
B. Producers of cotton sweatshirts reduce the prices of their products.
C. A disease significantly reduces the sheep population (wool comes from sheep).
D. Apparel manufacturers develop a more efficient way of processing wool fabrics.
E. None of the above.
answer
A. Consumers expect the weather to be colder than normal during the next several weeks.
question
Consider the market for wool sweaters. Which of the following will cause higher prices and a lower quantity of wool sweaters exchanged?
A. Consumers expect the weather to be colder than normal during the next several weeks.
B. Producers of cotton sweatshirts reduce the prices of their products.
C. A disease significantly reduces the sheep population (wool comes from sheep).
D.Apparel manufacturers develop a more efficient way of processing wool fabrics.
E. None of the above.
A. Consumers expect the weather to be colder than normal during the next several weeks.
B. Producers of cotton sweatshirts reduce the prices of their products.
C. A disease significantly reduces the sheep population (wool comes from sheep).
D.Apparel manufacturers develop a more efficient way of processing wool fabrics.
E. None of the above.
answer
C. A disease significantly reduces the sheep population (wool comes from sheep).
question
Consider the market for new cars.Which of the following will cause lower prices and a lower quantity of new cars exchanged?
A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance.
B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections.
C. There is a significant increase in the perceived quality of used cars by potential car buyers.
D. New technology improves the production efficiency of automobile manufacturers.
E. None of the above.
A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance.
B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections.
C. There is a significant increase in the perceived quality of used cars by potential car buyers.
D. New technology improves the production efficiency of automobile manufacturers.
E. None of the above.
answer
C. There is a significant increase in the perceived quality of used cars by potential car buyers.
question
Consider the market for new cars.Which of the following will cause lower prices and a greater quantity of new cars exchanged?
A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance.
B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections.
C. There is a significant increase in the perceived quality of used cars by potential car buyers.
D. New technology improves the production efficiency of automobile manufacturers.
E. None of the above.
A. New government regulations require automobile manufacturers to triple the amount of money they pay per worker for auto worker's compensation insurance.
B. New government regulations make it more difficult for cars more than 8 years old to pass safety inspections.
C. There is a significant increase in the perceived quality of used cars by potential car buyers.
D. New technology improves the production efficiency of automobile manufacturers.
E. None of the above.
answer
D. New technology improves the production efficiency of automobile manufacturers.
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