Econ 202 Ole Miss
The word "economy" comes from the Greek word oikonomos, which means
"one who manages a household."
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
$1,600.
If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are
$100.
Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is
$150.
Absolute advantage is found by comparing different producers' a. input requirements per unit of output. b. locational and logistical circumstances. c. payments to land, labor, and capital. d. opportunity costs.
A
Duties of the Council of Economic Advisers include a. advising the president and writing the annual Economic Report of the President. b. implementing the president's tax policies. c. tracking the behavior of the nation's money supply. d. All of the above are correct.
A
Which of the following statements best captures the relationship between microeconomics and macroeconomics? a. Microeconomists study markets for small products, whereas macroeconomists study markets for large products. b. Microeconomics and macroeconomics are distinct from one another, yet they are closely related. c. For the most part, microeconomists are unconcerned with macroeconomics, and macroeconomists are unconcerned with microeconomics. d. Microeconomics is oriented toward policy studies, whereas macroeconomics is oriented toward theoretical studies.
B
An example of a perfectly competitive market would be the market for a. coffee shops. b. electricity. c. soybeans. d. restaurants.
C
When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing a. surpluses. b. inequalities. c. scarcity. d. inefficiencies.
C
In the long run, a firm will enter a competitive industry if a. total revenue exceeds total cost. b. the price exceeds average total cost. c. the firm can earn economic profits. d. All of the above are correct.
D
With a corrective tax, the supply curve for pollution is a. upward-sloping. b. vertical. c. downward-sloping. d. horizontal.
D
Economics deals primarily with the concept of
Scarcity
A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?
The United States should withdraw from the North American Free Trade Agreement (NAFTA).
When two variables move in the same direction, the curve relating them is
upward sloping, and we say the variables are positively related.
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is
1/6 table for Ken and 1/3 table for Traci.
Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 table is
6 chairs for Ken and 3 chairs for Traci.
A city street is a. a common resource when it is congested, but it is a public good when it is not congested. b. always a public good, whether or not it is congested. c. always a common resource, whether or not it is congested. d. a public good when it is congested, but it is a common resource when it is not congested.
A
A decrease in the number of sellers in the market causes a. the supply curve to shift to the left. b. a movement up and to the right along a stationary supply curve. c. the supply curve to shift to the right. d. a movement downward and to the left along a stationary supply curve.
A
A firm that is a natural monopoly a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of diseconomies of scale. c. would experience a lower average total cost if more firms entered the market. d. All of the above are correct.
A
A likely example of substitute goods for most people would be a. pencils and pens. b. televisions and subscriptions to cable television services. c. peanut butter and jelly. d. tennis balls and tennis rackets.
A
A normative economic statement such as "The minimum wage should be abolished" a. would require values and data to be evaluated. b. would likely be made by an economist acting as a scientist. c. could not be evaluated by economists acting as policy advisers. d. would require data but not values to be evaluated.
A
A seller in a competitive market can a. sell all he wants at the going price, so he has little reason to charge less. b. influence the market price by adjusting his output. c. influence the profits earned by competing firms by adjusting his output. d. All of the above are correct.
A
A tax imposed on the buyers of a good will raise the a. price paid by buyers and lower the equilibrium quantity. b. effective price received by sellers and raise the equilibrium quantity. c. price paid by buyers and raise the equilibrium quantity. d. effective price received by sellers and lower the equilibrium quantity.
A
A tax imposed on the sellers of a good will raise the a. price paid by buyers and lower the equilibrium quantity. b. price paid by buyers and raise the equilibrium quantity. c. effective price received by sellers and raise the equilibrium quantity. d. effective price received by sellers and lower the equilibrium quantity.
A
Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is a. $0.70. b. $1.00. c. $0.50. d. $0.60.
A
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. $1,600. b. -$1,600. c. $8,000. d. $3,200.
A
Coal is considered to be a non-renewable energy source. Which of the following statements is correct? a. Coal is a scarce resource. b. Coal is not a resource. c. Coal is an unlimited resource. d. Coal is a non-productive resource.
A
Congress relies on economists at the Congressional Budget Office to a. provide independent evaluations of policy proposals. b. provide evidence that incumbent members of Congress are performing well in their jobs. c. set the nation's monetary policy. d. enforce the nation's antitrust laws.
A
Economics deals primarily with the concept of a. scarcity. b. poverty. c. money. d. banking.
A
Economics is the study of a. how society manages its scarce resources. b. how households decide who performs which tasks. c. production methods. d. the interaction of business and government.
A
Economists assume that the typical person who starts her own business does so with the intention of a. maximizing profits. b. capturing the highest number of sales in her industry. c. donating the profits from her business to charity. d. minimizing costs.
A
Fire protection is a a. club good, because it is excludable but not rival in consumption. b. a public good, because it is excludable but not rival in consumption. c. a public good, because it is rival in consumption but not excludable. d. club good, because it is rival in consumption but not excludable.
A
For which of the following goods is the income elasticity of demand likely highest? a. boats b. doctor's visits c. natural gas d. hamburgers
A
If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will a. increase consumer surplus. b. reduce consumer surplus. c. not affect consumer surplus. d. Any of the above are possible.
A
If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of selling the eighth unit is equal to a. -$4. b. $24. c. $3. d. $4.
A
In most societies, resources are allocated by a. the combined actions of millions of households and firms. b. a single central planner. c. a small number of central planners. d. those firms that use resources to provide goods and services.
A
Many movie theaters allow discount tickets to be sold to senior citizens because a. the theaters are profit maximizers. b. senior-citizen laws mandate such discounts. c. senior citizens lobby city councils for lower prices. d. goodwill efforts earn community respect and win loyal patrons.
A
Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production. a. (iii) only b. (i), (ii), and (iii) c. (ii) and (iii) only d. (i) and (ii) only
A
National defense is a classic example of a public good because a. it is difficult to exclude people from receiving the benefits from national defense once it is provided. b. there are no private firms willing to supply defense goods such as tanks and weapons. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there is no market for private security services.
A
One should be especially wary of the national-security argument for restricting trade when that argument is made by a. representatives of industry. b. foreign government officials. c. representatives of the defense establishment. d. members of households.
A
Property rights are well established for a. private goods. b. public goods. c. common resources. d. both (b) and (c).
A
Public schools, parks, libraries, and roads are paid for largely through tax revenue because a. these goods create a free-rider problem. b. society finds them so valuable that citizens are happy to pay for their full cost. c. All of the above are correct. d. if they were funded privately, too many of these goods would be produced.
A
Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing a. constant returns to scale. b. economies of scale. c. diseconomies of scale. d. specialization.
A
Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing a. economies of scale. b. constant returns to scale. c. coordination problems. d. diseconomies of scale.
A
Technology spillover occurs when a. a firm's research yields technical knowledge that is used by society as a whole. b. a firm passes the high costs of technical research on to society through higher prices. c. the government subsidizes firms engaged in high-tech research. d. copyright laws prohibit firms from profiting from the research of others.
A
The most obvious benefit of specialization and trade is that they allow us to a. consume more goods than we otherwise would be able to consume. b. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. c. consume more goods by forcing people in other countries to consume fewer goods. d. work more hours per week than we otherwise would be able to work.
A
When a buyer's willingness to pay for a good is equal to the price of the good, the a. buyer is indifferent between buying the good and not buying it. b. price of the good exceeds the value that the buyer places on the good. c. buyer will buy as much of the good as the buyer's budget allows. d. buyer's consumer surplus for that good is maximized.
A
Which of the following is a disadvantage of government provision of a public good? a. The government lacks information about what people are willing to pay for the good. b. The government does not provide enough of any public good. c. The private sector can provide all public goods at a lower cost. d. None of the above is a disadvantage.
A
Which of the following statements is correct? a. The demand curve facing a competitive firm is horizontal, whereas the demand curve facing a monopolist is downward sloping. b. The demand curve facing a competitive firm is horizontal, as is the demand curve facing a monopolist. c. The demand curve facing a competitive firm is downward sloping, whereas the demand curve facing a monopolist is horizontal. d. The demand curve facing a competitive firm is downward sloping, as is the demand curve facing a monopolist.
A
A cable television broadcast of a movie is a. excludable and rival in consumption. b. excludable and not rival in consumption. c. not excludable and not rival in consumption. d. not excludable and rival in consumption.
B
A command-and-control policy is another term for a a. pollution permit. b. government regulation. c. corrective tax. d. Both a and b are correct.
B
A competitive market is one in which there a. is only one seller, but there are many buyers. b. are so many buyers and so many sellers that each has a negligible impact on the price of the product. c. are many sellers, and each seller has the ability to set the price of his product. d. are many sellers, and they compete with one another in such a way that some sellers are always being forced out of the market.
B
A cost imposed on someone who is neither the consumer nor the producer is called a a. corrective tax. b. negative externality. c. positive externality. d. command and control policy.
B
A demand curve shows the relationship a. between income and quantity demanded. b. between price and quantity demanded. c. between price and income. d. among income, price, and quantity demanded.
B
A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? a. The radio station puts up a shield, which it pays for. b. The dentist gets a new drill; it does not matter who pays for it. c. Neither the radio station nor the dentist purchase additional equipment. d. The radio station puts up a shield, which the dentist pays for.
B
A difference between explicit and implicit costs is that a. implicit costs must be greater than explicit costs. b. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. c. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. d. explicit costs must be greater than implicit costs.
B
A leftward shift of a demand curve is called a(n) a. decrease in quantity demanded. b. decrease in demand. c. increase in demand. d. increase in quantity demanded.
B
A legal maximum on the price at which a good can be sold is called a price a. subsidy. b. ceiling. c. support. d. floor.
B
A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.90 per unit. The marginal revenue of the 151st unit of output is a. -$0.10. b. -$5.10. c. $2.45. d. $5.10.
B
A production possibilities frontier is bowed outward when a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. b. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced. c. an economy is self-sufficient instead of interdependent and engaged in trade. d. the rate of tradeoff between the two goods being produced is constant.
B
A sunk cost is one that a. has the most impact on profit-making decisions. b. was paid in the past and will not change regardless of the present decision. c. should determine the rational course of action in the future. d. changes as the level of output changes in the short run.
B
A surplus results when a a. binding price floor is removed from a market. b. binding price floor is imposed on a market. c. nonbinding price floor is imposed on a market. d. nonbinding price floor is removed from a market.
B
A tax levied on the buyers of a good shifts the a. demand curve upward (or to the right). b. demand curve downward (or to the left). c. supply curve downward (or to the right). d. supply curve upward (or to the left).
B
According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as a. businesses determine an appropriate level of production. b. private parties can bargain with sufficiently low transaction costs. c. the externalities that are present are positive, not negative. d. government assigns property rights to the harmed party.
B
Almost all economists agree that tariffs and import quotas a. stimulate a less than fully employed economy. b. reduces general economic welfare. c. increases general economic welfare. d. have no effect on general economic welfare.
B
An increase in price causes an increase in total revenue when demand is a. elastic. b. inelastic. c. unit elastic. d. All of the above are possible.
B
Analysis of data on workers and those looking for work is conducted by economists at the a. Office of Management and Budget. b. Department of Labor. c. Congressional Budget Office. d. Department of the Treasury.
B
Because of the free-rider problem, a. fireworks displays have become increasingly dangerous. b. private markets tend to undersupply public goods. c. poverty has increased. d. the federal government spends too many resources on national defense and not enough resources on medical research.
B
Buyers and sellers who have no influence on market price are referred to as a. market pawns. b. price takers. c. monopolists. d. price setters.
B
Comparative advantage is related most closely to which of the following? a. efficiency b. opportunity cost c. output per hour d. bargaining strength in international trade
B
Consider the following problems: overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common? a. They would all go away if the government sponsored an intensive public-information campaign. b. They are all the result of a failure to establish clear property rights over something of value. c. They are all the result of a failure of corrective taxes. d. Private markets could easily solve them if governments left the markets alone.
B
Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by a. encouraging people to adopt cats. b. making it illegal to "disturb the peace." c. subsidizing local animal shelters. d. having a well-funded animal control department.
B
Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. b. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. c. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.
B
If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will a. earn economic profits. b. earn economic losses. c. produce a lower quantity of output than is socially optimal. d. earn zero economic profits.
B
If the current allocation of resources in the market for wallpaper is efficient, a. producer surplus equals consumer surplus in the market for wallpaper. b. the market for wallpaper is in equilibrium. c. on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers. d. All of the above are correct.
B
If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that a. producer surplus equals consumer surplus in the market for wallpaper. b. the market for wallpaper is in equilibrium. c. on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers. d. All of the above are correct.
B
In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is a. zero. b. the market supply curve. c. equal to the industry profits. d. a horizontal line.
B
In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so a. because it is impossible to analyze the gains and losses from international trade without making this assumption. b. because then we can assume that world prices of goods are unaffected by that country's participation in international trade. c. in order to rule out the possibility of tariffs or quotas. d. All of the above are correct.
B
In the short run, a firm incurs fixed costs a. only if it produces no output. b. whether it produces output or not. c. only if it produces a positive quantity of output. d. only if it incurs variable costs.
B
Inefficiency exists in an economy when a good is a. not produced because buyers do not value it very highly. b. not being consumed by buyers who value it most highly. c. being produced with less than all available resources. d. not distributed fairly among buyers.
B
Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to a. cause these factories to pay the U.S. minimum wage. b. increase poverty in poor countries and benefit U.S. firms which compete with these imports. c. harm U.S. firms which compete with these imports. d. increase the rate of technological advance in poor countries so that they can afford to pay higher wages.
B
Other things equal, the deadweight loss of a tax a. decreases as the size of the tax increases. b. increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax. c. increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. d. increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.
B
Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. supply of the product is more elastic than the demand for the product. b. demand for the product is more elastic than the supply of the product. c. tax is placed on the sellers of the product. d. tax is placed on the buyers of the product.
B
Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that a. Spain imports olive oil. b. the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed. c. consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries were not allowed. d. All of the above are correct.
B
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will a. raise both price and total revenues. b. lower both price and total revenues. c. raise price and lower total revenues. d. lower price and raise total revenues.
B
Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then a. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. d. There is not enough information to answer the question.
B
The higher a country's tax rates, the more likely that country will be a. experiencing small deadweight losses. b. on the negatively sloped part of the Laffer curve. c. at the top of the Laffer curve. d. on the positively sloped part of the Laffer curve.
B
The phenomenon of scarcity stems from the fact that a. most economies' production methods are not very good. b. resources are limited. c. in most economies, wealthy people consume disproportionate quantities of goods and services. d. governments restrict production of too many goods and services.
B
The price elasticity of supply measures how responsive a. equilibrium price is to equilibrium quantity. b. sellers are to a change in price. c. sellers are to a change in buyers' income. d. consumers are to the number of substitutes.
B
The study of how society manages its scarce resources is most closely associated with which field of study? a. accounting b. economics c. management d. environmental studies
B
Two types of private solutions to the problem of externalities are a. the Golden Rule and taxes. b. charities and the Golden Rule. c. charities and subsidies. d. taxes and subsidies.
B
A benefit of a monopoly is a. efficient production. b. decreasing long-run marginal costs. c. profit that can be invested in research and development. d. All of the above are correct.
C
A country that currently does not trade with other countries could benefit by a. restricting imports and promoting exports. b. promoting imports and restricting exports. c. not restricting trade. d. restricting both imports and exports.
C
A demand curve reflects each of the following except the a. highest price buyers are willing to pay for each quantity. b. willingness to pay of all buyers in the market. c. ability of buyers to obtain the quantity they desire. d. value each buyer in the market places on the good.
C
A demand schedule is a table that shows the relationship between a. income and quantity demanded. b. quantity demanded and quantity supplied. c. price and quantity demanded. d. price and income.
C
A firm has market power if it can a. hire as many workers as it needs at the prevailing wage rate. b. minimize costs. c. influence the market price of the good it sells. d. maximize profits.
C
A good that is rival in consumption and not excludable is called a a. public good. b. club good. c. common resource. d. private good.
C
A good will have a more inelastic demand, the a. more it is regarded as a luxury. b. greater the availability of close substitutes. c. broader the definition of the market. d. longer the period of time.
C
A government-created monopoly arises when a. government spending in a certain industry gives rise to monopoly power. b. the government exercises its market control by encouraging competition among sellers. c. the government gives a firm the exclusive right to sell some good or service. d. Both a and c are correct.
C
A monopolist will choose to increase output when a. the demand curve shifts to the left. b. at all levels of output, marginal cost increases. c. at the present level of output, marginal revenue exceeds marginal cost. d. market price increases.
C
A perfectly inelastic demand implies that buyers a. decrease their purchases when the price rises. b. increase their purchases only slightly when the price falls. c. purchase the same amount as before when the price rises or falls. d. respond substantially to an increase in price.
C
A person can benefit from specialization and trade by obtaining a good at a price that is a. the same as his or her opportunity cost of that good. b. higher than his or her opportunity cost of that good. c. lower than his or her opportunity cost of that good. d. different than his or her opportunity cost of that good.
C
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is a. elastic. b. unit elastic. c. inelastic. d. highly responsive to changes in income.
C
A positive economic statement such as "Pollution taxes decrease the quantity of pollution generated by firms" a. would require data but not values to be evaluated. b. would require values and data to be evaluated. c. could not be evaluated by economists acting as scientists. d. would likely be made by an economist acting as a policy advisor.
C
A positive externality will cause a market to produce a. the socially optimal equilibrium amount. b. more than the same market would produce in the presence of a negative externality. c. less than is socially desirable. d. more than is socially desirable.
C
A price ceiling is binding when it is set a. above the equilibrium price, causing a shortage. b. below the equilibrium price, causing a surplus. c. below the equilibrium price, causing a shortage. d. above the equilibrium price, causing a surplus.
C
A price floor is binding when it is set a. below the equilibrium price, causing a shortage. b. above the equilibrium price, causing a shortage. c. above the equilibrium price, causing a surplus. d. below the equilibrium price, causing a surplus.
C
A tax imposed on the buyers of a good will lower the a. price paid by buyers and lower the equilibrium quantity. b. effective price received by sellers and raise the equilibrium quantity. c. effective price received by sellers and lower the equilibrium quantity. d. price paid by buyers and raise the equilibrium quantity.
C
A tax levied on the sellers of a good shifts the a. supply curve downward (or to the right). b. demand curve downward (or to the left). c. supply curve upward (or to the left). d. demand curve upward (or to the right).
C
A tax on buyers will shift the a. supply curve upward by the amount of the tax. b. demand curve upward by the amount of the tax. c. demand curve downward by the amount of the tax. d. supply curve downward by the amount of the tax.
C
Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that a. Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. b. Abe pays Jenny $350 for her inconvenience. c. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. d. There is no private transaction that would improve this situation.
C
As we move downward and to the right along a linear, downward-sloping demand curve, a. slope changes but elasticity remains constant. b. both slope and elasticity remain constant. c. slope remains constant but elasticity changes. d. both slope and elasticity change.
C
Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and a. other countries have a comparative advantage, relative to the country in question, in producing the good. b. the country becomes an importer of the good as a result. c. the world price exceeds the domestic price of the good that prevailed before international trade was allowed. d. total surplus does not change as a result.
C
Economists at the Department of Justice a. track the behavior of the nation's money supply. b. advise Congress on economic matters. c. help enforce the nation's antitrust laws. d. prepare the federal budget.
C
Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as a. confirmation of the infant-industry argument. b. confirmation that free trade agreements are not necessary. c. confirmation of the virtues of free trade. d. confirmation that specialization in absolute advantage works.
C
Fixed costs can be defined as costs that a. vary inversely with production. b. vary in proportion with production. c. are incurred even if nothing is produced. d. are incurred only when production is large enough.
C
For any country that allows free trade, a. both producers and consumers in that country gain when domestic products are exported, but both groups lose when foreign products are imported. b. domestic quantity demanded is greater than domestic quantity supplied at the world price. c. the domestic price is equal to the world price. d. domestic quantity demanded is equal to domestic quantity supplied at the world price.
C
For which pairs of goods is the cross-price elasticity most likely to be positive? a. bicycle frames and bicycle tires b. peanut butter and jelly c. pens and pencils d. college textbooks and iPods
C
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. Any of the above may be true depending on the firm's labor productivity.
C
If a shortage exists in a market, then we know that the actual price is a. above the equilibrium price, and quantity demanded is greater than quantity supplied. b. above the equilibrium price, and quantity supplied is greater than quantity demanded. c. below the equilibrium price, and quantity demanded is greater than quantity supplied. d. below the equilibrium price, and quantity supplied is greater than quantity demanded.
C
If a surplus exists in a market, then we know that the actual price is a. above the equilibrium price, and quantity demanded is greater than quantity supplied. b. below the equilibrium price, and quantity demanded is greater than quantity supplied. c. above the equilibrium price, and quantity supplied is greater than quantity demanded. d. below the equilibrium price, and quantity supplied is greater than quantity demanded.
C
If marginal cost is rising, a. average fixed cost must be rising. b. marginal product must be rising. c. marginal product must be falling. d. average variable cost must be falling.
C
If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should a. use more fertilizers and weed killers to increase their yields. b. plant additional acres to increase their output. c. reduce the number of acres they plant to decrease their output. d. Both a and b are correct.
C
If the United States threatens to impose a tariff on Honduran blueberries if Honduras does not remove agricultural subsidies, the United States will be a. worse off no matter how Honduras responds. b. better off if Honduras gives in, and will be no worse off if it doesn't. c. worse off if Honduras doesn't give in to the threat. d. better off no matter how Honduras responds.
C
If the labor supply curve is very elastic, a tax on labor a. results in a large tax burden on the firms that hire labor. b. raises enough tax revenue to offset the loss in welfare. c. has a large deadweight loss. d. has a relatively small impact on the number of hours that workers choose to work.
C
In a market economy, supply and demand determine a. the price at which each good is sold but not the quantity of each good produced. b. the quantity of each good produced but not the price at which it is sold. c. both the quantity of each good produced and the price at which it is sold. d. neither the quantity of each good produced nor the price at which it is sold.
C
In a market with a fixed number of firms, as long as price is above average a. variable cost, each firm's marginal-cost curve is its supply curve. b. total cost, each firm's marginal-cost curve is its supply curve. c. total cost, each firm's average-total-cost curve is its supply curve. d. variable cost, each firm's average-total-cost curve is its supply curve.
C
It does not matter whether a tax is levied on the buyers or the sellers of a good because a. sellers always bear the full burden of the tax. b. buyers always bear the full burden of the tax. c. buyers and sellers will share the burden of the tax. d. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.
C
Market power refers to the a. government regulations imposed on the sellers in a market. b. forces of supply and demand in determining equilibrium price. c. ability of market participants to influence price. d. side effects that may occur in a market.
C
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a. less of a concern for a monopoly than competitive market. b. offset by the higher profits earned by a monopolist. c. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market. d. All of the above are correct.
C
Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. continue to operate in both the short run and long run. b. shut down in both the short run and long run. c. continue to operate in the short run but shut down in the long run. d. shut down her business in the short run but continue to operate in the long run.
C
Producer surplus directly measures a. the well-being of society as a whole. b. sellers' willingness to sell. c. the well-being of sellers. d. the well-being of buyers and sellers.
C
Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil a. would have nothing to gain either from exporting or importing almonds. b. will export almonds. c. will import almonds. d. will either import almonds or export almonds, but it is not clear from the given information.
C
Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests a. Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an absolute advantage over Russia in producing sunflower seeds. b. Russia has an absolute advantage over Ireland in producing sunflower seeds, and Brazil has an absolute advantage over Russia in producing coffee. c. Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee. d. Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a comparative advantage over Russia in producing sunflower seeds.
C
Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing a. constant returns to scale. b. specialization. c. diseconomies of scale. d. economies of scale.
C
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a. less than $2.50 b. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. c. exactly $2.50 d. more than $2.50
C
The Laffer curve illustrates that a. deadweight loss rises by the square of the increase in a tax. b. deadweight loss rises exponentially as a tax increases. c. tax revenue first rises, then falls as a tax increases. d. Both a) and b) are correct.
C
The most likely explanation for economies of scale is a. decreasing marginal cost. b. increasing marginal cost. c. specialization of labor. d. coordination problems.
C
The overriding reason why households and societies face many decisions is that a. goods and services are not scarce. b. people, by nature, tend to disagree. c. resources are scarce. d. incomes fluctuate with business cycles.
C
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. minimizes the expenditure of buyers. b. maximizes costs of the seller. c. maximizes the combined welfare of buyers and sellers. d. maximizes tax revenue for the government.
C
The production possibilities frontier illustrates a. the combinations of output that an economy should produce. b. the combinations of output that an economy should consume. c. the combinations of output that an economy can produce. d. All of the above are correct.
C
To increase safety at a bad intersection, the mayor must decide whether to install a traffic light at a cost of $45,000. If the traffic light reduces the risk of fatality by 0.4 percent, and the value of a human life is estimated to be $10 million, the mayor should a. install the light because the expected benefit of $45,000 is greater than the cost. b. not install the light because the expected benefit of $45,000 is only equal to the cost. c. not install the light because the expected benefit of $40,000 is less than the cost. d. install the light because the expected benefit of $400,000 is greater than the cost.
C
Tom Brady should probably not mow his own lawn because a. he has an absolute advantage in mowing his lawn relative to a landscaping service. b. he has a comparative advantage in mowing his lawn relative to a landscaping service. c. his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him. d. he might sprain his ankle.
C
When the government imposes taxes on buyers or sellers of a good, society a. is better off because the government's tax revenues exceed the deadweight loss. b. moves from an elastic supply curve to an inelastic supply curve. c. loses some of the benefits of market efficiency. d. gains efficiency but loses equality.
C
When two countries trade with one another, it is most likely because a. the opportunity costs of producing various goods are identical for the two countries. b. some people involved in the trade do not understand that one of the two countries will become worse-off because of the trade. c. the two countries wish to take advantage of the principle of comparative advantage. d. the wealthy people in each of the two countries are able to benefit, through trade, by taking advantage of other people who are poor.
C
Which of the following explains why long-run average cost at first decreases as output increases? a. fixed costs becoming spread out over more units of output b. diseconomies of scale c. gains from specialization of inputs d. less-efficient use of inputs
C
With no price discrimination, the monopolist sells every unit at the same price. Therefore a. marginal revenue is equal to price. b. marginal revenue is equal to average revenue. c. price is greater than marginal revenue. d. Both a and b are correct.
C
With pollution permits, the supply curve for pollution rights is a. downward sloping. b. upward sloping. c. perfectly inelastic. d. perfectly elastic.
C
f sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is a. infinity, and the supply curve is vertical. b. infinity, and the supply curve is horizontal. c. zero, and the supply curve is vertical. d. zero, and the supply curve is horizontal.
C
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
Consumer surplus decreases.
A binding minimum wage tends to a. cause a labor surplus. b. cause unemployment. c. have the greatest impact in the market for teenage labor. d. All of the above are correct.
D
A cheeseburger is a a. common resource, because it is rival in consumption but not excludable. b. public good, because it is rival in consumption but not excludable. c. public good, because it is excludable and rival in consumption. d. private good, because it is excludable and rival in consumption.
D
A circular-flow diagram is a model that a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized. c. incorporates all aspects of the real economy. d. Both (a) and (b) are correct.
D
A deadweight loss is a consequence of a tax on a good because the tax a. induces the government to increase its expenditures. b. imposes a loss on buyers that is greater than the loss to sellers. c. increases the equilibrium price in the market. d. induces buyers to consume less, and sellers to produce less.
D
A good will have a more elastic demand, the a. more it is regarded as a necessity. b. more broad the definition of the market. c. shorter the period of time. d. greater the availability of close substitutes.
D
A key characteristic of a competitive market is that a. government antitrust laws regulate competition. b. firms have price setting power. c. firms minimize total costs. d. producers sell nearly identical products.
D
A leftward shift of a supply curve is called a(n) a. increase in supply. b. decrease in quantity supplied. c. increase in quantity supplied. d. decrease in supply.
D
A minimum wage that is set above a market's equilibrium wage will result in an excess a. demand for labor, that is, a shortage of workers. b. supply of labor, that is, a shortage of workers. c. demand for labor, that is, unemployment. d. supply of labor, that is, unemployment.
D
A price ceiling will be binding only if it is set a. above the equilibrium price. b. equal to the equilibrium price. c. either above or below the equilibrium price. d. below the equilibrium price.
D
A profit-maximizing firm will shut down in the short run when a. average revenue is greater than marginal cost. b. price is less than average total cost. c. average revenue is greater than average fixed cost. d. price is less than average variable cost.
D
A society allocates its scarce resources to various jobs. These scarce resources include a. land. b. people. c. machines. d. All of the above are correct.
D
A tax affects a. buyers only. b. buyers and sellers only. c. sellers only. d. buyers, sellers, and the government.
D
A tax burden falls more heavily on the side of the market that a. is closer to unit elastic. b. has a fewer number of participants. c. is less inelastic. d. is more inelastic.
D
According to the Coase theorem, in the presence of externalities a. the initial distribution of property rights will determine the efficient outcome. b. the assignment of legal rights can prevent externalities. c. government assistance is necessary to reach an efficient outcome. d. private parties can bargain to reach an efficient outcome.
D
After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries, a. The world price of coffee does not matter; the domestic price of coffee prevails. b. the domestic price of coffee will be lower than the world price of coffee. c. the domestic price of coffee will be greater than the world price of coffee. d. the domestic price of coffee will equal the world price of coffee.
D
Almost all economists agree that rent control a. is a very inexpensive way to help the most needy members of society. b. has no effect on the rental income of landlords. c. allows the market for housing to work more efficiently. d. adversely affects the availability and quality of housing.
D
Externalities tend to cause markets to be a. unequal. b. unnecessary. c. overwhelmed. d. inefficient.
D
Firms operating in competitive markets produce output levels where marginal revenue equals a. price. b. average revenue. c. total revenue divided by output. d. All of the above are correct.
D
For a good that is a necessity, demand a. cannot be represented by a demand curve in the usual way. b. tends to be elastic. c. has unit elasticity. d. tends to be inelastic.
D
For any competitive market, the supply curve is closely related to the a. interest rates on government bonds. b. income tax rates of consumers in that market. c. preferences of consumers who purchase products in that market. d. firms' costs of production in that market.
D
For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the a. marginal revenue curve. b. average total cost curve. c. average variable cost curve. d. marginal cost curve.
D
For which pairs of goods is the cross-price elasticity most likely to be negative? a. automobile tires and coffee b. pens and pencils c. paperback novels and electronic books for e-readers d. peanut butter and jelly
D
If labor in Mexico is less productive than labor in the United States in all areas of production, a. then the United States will have a comparative advantage relative to Mexico in the production of all goods. b. then neither nation can benefit from trade. c. then Mexico can benefit from trade but the United States cannot. d. then both Mexico and the United States still can benefit from trade.
D
If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is a. zero, and the supply curve is horizontal. b. infinity, and the supply curve is vertical. c. infinity, and the supply curve is horizontal. d. zero, and the supply curve is vertical.
D
If the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur? a. The price of kidneys would rise to balance supply and demand. b. The gains from trade would make both buyers and sellers better off. c. Thousands of lives would be saved. d. All of the above are correct
D
If the tax on a good is doubled, the deadweight loss of the tax a. triples. b. increases by 50 percent. c. doubles. d. quadruples.
D
In considering how to allocate its scarce resources among its various members, a household considers each member's abilities. b. each member's efforts. c. each member's desires. d. All of the above are correct.
D
In the Tragedy of the Commons parable, if the medieval townspeople had foreseen the tragedy, then they could have dealt with the problem in much the same way that modern society deals with a. national defense. b. poverty. c. fire protection. d. pollution.
D
It is common knowledge that many U.S. national parks have become overused. One possible solution to this problem is to a. decrease camping permit fees. b. sell the land that the parks currently occupy. c. require all visitors to register upon entering the park. d. increase entrance fees.
D
Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? a. $-5,000 b. $20,000 c. $-55,000 d. $5,000
D
Marginal revenue can become negative for a. competitive firms but not for monopoly firms. b. neither competitive nor monopoly firms. c. both competitive and monopoly firms. d. monopoly firms but not for competitive firms.
D
Microeconomics is the study of a. how money affects the economy. b. how the economy as a whole works. c. how government affects the economy. d. how individual households and firms make decisions.
D
Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade? a. Olivia cannot grow corn and Andrew cannot bake cakes. b. Olivia is better than Andrew at baking cakes and Andrew is better than Olivia at growing corn. c. Olivia is better than Andrew at baking cakes and at growing corn. d. Both Olivia and Andrew can benefit from trade in all of the above cases.
D
Perfect price discrimination describes a situation in which the monopolist a. experiences a zero economic profit. b. maximizes consumer surplus. c. charges exactly two different prices to exactly two different groups of customers. d. knows the exact willingness to pay of each of its customers.
D
Profit-maximizing firms enter a competitive market when existing firms in that market have a. average total costs that exceed average revenue. b. total revenues that exceed total variable costs. c. total revenues that exceed fixed costs. d. average total costs less than market price.
D
Reaching an efficient bargain is difficult when the a. externality is negative. b. externality is large. c. government becomes involved. d. number of interested parties is large.
D
The supply of a good or service is determined by a. both those who buy and those who sell the good or service. b. the government. c. those who buy the good or service. d. those who sell the good or service.
D
What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have? a. inequality b. market failure c. inefficiency d. scarcity
D
When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all a. have similar tastes and abilities. b. are concerned about one another's well-being. c. rely upon the government to provide us with the basic necessities of life. d. rely upon one another for the goods and services we consume.
D
Which of the following is a subject that economists study? a. the growth in average income b. the fraction of the population that cannot find work c. the rate at which prices are rising d. All of the above are correct.
D
Which of the following is not an example of scarcity? a. Each member of a household cannot get everything he or she wants. b. Every individual in society cannot attain the highest standard of living to which he or she might aspire. c. Only some people can afford to buy a BMW automobile. d. Miranda has an unlimited supply of oranges in her orchard.
D
Which of the following products would be considered scarce? a. bread b. baseballs autographed by Babe Ruth c. motorcycles d. All of the above are correct.
D
In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.
In the short run firms will shut down, and in the long run firms will leave the market.
A quota is
a limit on the quantity of imports.
For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is that
a tariff raises revenue for that country's government, while an import quota does not.
A price floor will be binding only if it is set
above the equilibrium price.
A perfectly elastic demand implies that
any rise in price above that represented by the demand curve will result in a quantity demanded of zero.
John Maynard Keynes referred to economics as an easy subject,
at which very few excel.
A fundamental source of monopoly market power arises from
barriers to entry.
A shortage results when a
binding price ceiling is imposed on a market.
This figure shows the market demand and market supply curves for good Y
binding price floor that creates a surplus.
A likely example of complementary goods for most people would be
canoes and paddles.
A model that shows how dollars flow through markets among households and firms is called the
circular-flow diagram.
Emission controls on automobiles are an example of a
command-and-control policy to increase social efficiency.
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left).
A tariff on a product makes
domestic sellers better off and domestic buyers worse off.
A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve
downward by exactly $2.
When two variables move in opposite directions, the curve relating them is
downward sloping, and we say the variables are negatively related.
Macroeconomics is the study of
economy-wide phenomena.
A tax imposed on the sellers of a good will lower the
effective price received by sellers and lower the equilibrium quantity.
By allowing an income-tax deduction for charitable contributions, the government
encourages a private solution to a particular positive-externality problem.
A monopolist's average revenue is always
equal to the price of its product.
A firm's opportunity costs of production are equal to its
explicit costs + implicit costs.
By definition, imports are
goods produced abroad and sold domestically.
If the Korean steel industry subsidizes the steel that it sells to the United States, the
harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.
If the labor supply curve is nearly vertical, a tax on labor
has little impact on the amount of work that workers are willing to do.
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade.
For which of the following goods is the income elasticity of demand likely lowest?
housing
A consumer's willingness to pay directly measures
how much a buyer values a good.
As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
implicit costs.
Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's
implicit costs.
For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should
import copper.
A decrease in the price of a good will
increase quantity supplied.
Economists say that a market where goods are not consumed by those valuing the goods most highly is
inefficient
An increase in price causes an increase in total revenue when demand is
inelastic
A firm has market power if it can
influence the market price of the good it sells.
A tax burden falls more heavily on the side of the market that
is more inelastic.
A decrease in supply is represented by a
leftward shift of a supply curve.
In order to sell more of its product, a monopolist must
lower its price.
For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the
marginal cost curve.
Marginal revenue can become negative for
monopoly firms but not for competitive firms.
A negative externality will cause a private market to produce
more than is socially desirable.
A key characteristic of a competitive market is that
producers sell nearly identical products.
Diminishing marginal product suggests that the marginal
product of an extra worker is less than the previous worker's marginal product.
For a firm, the production function represents the relationship between
quantity of inputs and quantity of output.
Ronald Reagan believed that reducing income tax rates would
raise economic well-being and perhaps even tax revenue.
In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to
reduce the transaction costs of finding a private solution to an externality.
Resources are
scarce for households and scarce for economies.
For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is
smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
A improvement in production technology will shift the
supply curve to the right.
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
A tax on sellers will shift the
supply curve upward by the amount of the tax.
One problem with government operation of monopolies is that
the government typically has little incentive to reduce costs.
Monopoly profit is not a social problem because
the profit represents a transfer from the consumer to the producer with no loss in total surplus.
Generally, a firm is more willing and able to increase quantity supplied in response to a price change when
the relevant time period is long rather than short.
If the current allocation of resources in the market for hammers is inefficient, then it must be the case that
the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources.
Economics is the study of how society manages its
unlimited wants and limited resources.
The study of how the allocation of resources affects economic well-being is called
welfare economics.