Final

D

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice a. is referred to as tying. b. is regarded by some economists as a form of price discrimination. c. is controversial among economists because they disagree on whether it has adverse effects for society as a whole. d. All of the above are correct.

D

A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has a. minimized average total cost. b. chosen to produce where demand is unitary elastic. c. produced the efficient scale of output. d. chosen a quantity of output where average revenue equals average total cost.

B

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. What can the government do to equate the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels? a. ​impose a tax on rain barrels that is equal to the per-unit externality b. ​offer a subsidy on rain barrels that is equal to the per-unit externality c. ​encourage homeowners to bargain with rain barrel producers d. nothing​

B

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example of a case in which a. brand name identity increases the effectiveness of markets. b. brand name identity can be detrimental to the profitability of a firm. c. advertising is ineffective in salvaging perceptions of product quality. d. advertising cannot be used to establish brand loyalty.

B

An advance in farm technology that results in an increased market supply is a. good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food. b. bad for farmers because total revenue will fall but good for consumers because prices for food will fall. c. good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption. d. bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.

C

An oligopolist will increase production if the output effect is a. less than the price effect. b. equal to the price effect. c. greater than the price effect. d. The oligopolist never has an incentive to increase production.

A

Assume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect: a. ​The price to fall and output to rise b. ​The price to fall and output to fall c. ​The price to rise and output to rise d. ​The price to rise and output to fall

A

Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier? a. (200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts) b. (200 cashews, 40,000 peanuts) and (150 cashews, 30,000 peanuts) c. (300 cashews, 60,000 peanut) and (200 cashews, 50,000 peanuts) d. (300 cashews, 60,000 peanuts) and (200 cashews, 80,000 peanuts)

B

Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. Refer to Scenario 17-5. If the restaurant is able to use tying to price salads and steaks, what is the profit-maximizing price to charge for the "tied" good? a. $27 b. $20 c. $19 d. $15

C

Assume the market for pork is perfectly competitive. When one pork buyer exits the market, a. the price of pork increases. b. the price of pork decreases. c. the price of pork does not change. d. there is no longer a market for pork

A

At all levels of production higher than the point where the marginal cost curve crosses the average variable cost curve, average variable cost a. rises. b. remains unaffected. c. falls. d. All of the above are possible depending on the shape of the marginal cost curve

A

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that a. foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding. b. foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs. c. the critics are correct, so countries must protect their industries with tariffs or quotas. d. foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs.

A

Demand is inelastic if the price elasticity of demand is a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.

B

Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. Refer to Scenario 13-19. In producing the 7,000 pounds of cheese, the firm's average fixed cost was a. $0.29. b. $1.71. c. $2,00. d. $6.00.

B

Each firm in a monopolistically competitive market a. earns both short-run and long-run profits. b. faces a downward-sloping demand curve. c. cannot earn economic profit in the short run. d. sets price equal to marginal cost.

D

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. Refer to Scenario 13-9. Ellie's annual economic costs will equal a. $55,200. b. $75,200. c. $80,500. d. $135,700.

C

Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for a. resource monopolies. b. natural monopolies. c. government-created monopolies. d. breaking up monopolies into smaller firms.

A

Factors of production are a. used to produce goods and services. b. also called output. c. abundant in most economies. d. assumed to be owned by firms in the circular-flow diagram.

C

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-14. Farmer Brown's production function exhibits a. increasing marginal product. b. constant marginal product. c. diminishing marginal product. d. The production function is unrelated to the marginal product.

B

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about a. 0.5, and supply is elastic. b. 0.5, and supply is inelastic. c. 2, and supply is inelastic. d. 2, and supply is elastic.

D

If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that a. marginal revenue exceeds marginal cost. b. marginal cost exceeds marginal revenue. c. total cost exceeds total revenue. d. None of the above is correct.

C

If a market is a duopoly and additional firms enter and do not cooperate, then a. price and quantity fall. b. price and quantity rise. c. price falls and quantity rises. d. price rises and quantity falls.

A

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

D

If firms in a monopolistically competitive market are incurring economic losses, which of the following statements describes the changes that occur as the market adjusts to the long-run equilibrium? a. Each existing firm's demand curve shifts to the right. b. More firms exit the market. c. Each firm eliminates its excess capacity. d. Both a and b are correct.

C

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a a. 0.2 percent decrease in the quantity demanded. b. 5 percent decrease in the quantity demanded. c. 20 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

D

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about a. 0.25%. b. 1.2%. c. 2%. d. 12.5%.

B

If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia a. should import coffee. b. has a comparative advantage in coffee and should export coffee. c. should produce just enough coffee to satisfy domestic demand. d. should produce no coffee domestically.

A

If, at the current price, there is a surplus of a good, then a. sellers are producing more than buyers wish to buy. b. the market must be in equilibrium. c. the price is below the equilibrium price. d. quantity demanded equals quantity supplied.

C

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. efficient scale.

c

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is a. 75 per month. b. 100 per month. c. 125 per month. d. 150 per month.

A

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for chocolate chip cookies of an improved high-speed mixer that allows bakers to produce cookies in less time? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D

D

Refer to Figure 2-16. It is possible for this economy to produce a. 30 gadgets and 90 widgets. b. 50 gadgets and 80 widgets. c. 80 gadgets and 50 widgets. d. 90 gadgets and 30 widgets.

C

Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be a. $15. b. $30. c. $45. d. $90

D

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of a. $50. b. $40. c. $20. d. $10.

D

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a a. shortage to exist and the market price of roses to increase. b. shortage to exist and the market price of roses to decrease. c. surplus to exist and the market price of roses to increase. d. surplus to exist and the market price of roses to decrease.

D

Suppose that 300 bottles of soda are demanded at a particular price. If the price of a bottle of soda rises from that price by 6 percent, the number of bottles of soda demanded falls to 275. Using the midpoint approach to calculate the price elasticity of demand, it follows that the a. demand for bottles of soda in this price range is perfectly elastic. b. price increase will increase the total revenue of soda sellers. c. price elasticity of demand for bottles of soda in this price range is about 0.69. d. price elasticity of demand for bottles of soda in this price range is about 1.45.

A

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms, a. the long-run market supply curve will be upward sloping. b. the long-run market supply curve will be perfectly elastic. c. in the long run firms will suffer economic losses, leading them to exit the industry. d. the number of firms will decrease, and the market will become a monopoly.

D

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true? a. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. b. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. c. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

D

The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $50 per ticket? a. $25,000 b. $50,000 c. $75,000 d. $100,000

B

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. From the given information, it is apparent that a. the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. b. the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. c. the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. d. the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.

D

The field of economics is traditionally divided into two broad subfields, a. national economics and international economics. b. consumer economics and producer economics. c. private sector economics and public sector economics. d. microeconomics and macroeconomics.

C

The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

B

The manufacturer of South Face sells jackets to retail stores for $120 each, and it requires the retail stores to charge customers $150 per jacket. Any retailer that charges less than $150 would violate its contract with South Face. What do economists call this business practice? a. predatory pricing b. resale price maintenance c. tying d. leverage

B

The price elasticity of supply measures how much a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

C

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as a. sabotage. b. conspiracy. c. arbitrage. d. collusion.

D

The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is a. a private good. b. a public good. c. a club good. d. a common resource.

D

The supply curve for the monopolist a. is horizontal. b. is vertical. c. is upward sloping. d. does not exist.

C

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will a. ​increase his revenue, since the output decrease leads to a higher market price. b. ​increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output. c. ​decrease his revenue, since his output has decreased and the price remains the same. d. ​decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom's output.

C

Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. Refer to Scenario 13-11. An economist would calculate the total cost for one birdhouse to be a. $5. b. $8. c. $9. d. $13.

A

What do economists call the business practice of selling the same good at difference prices to different customers? a. price discrimination b. collusion c. compensating differential d. Both a and b are correct

C

When a firm has a natural monopoly, the firm's a. marginal cost always exceeds its average total cost. b. total cost curve is horizontal. c. average total cost curve is downward sloping. d. marginal cost curve must lie above the firm's average total cost curve.

C

When the price of peaches changes, the demand curve for peaches a. shifts because the price of peaches is measured on the vertical axis of the graph. b. shifts because the quantity demanded of peaches is measured on the horizontal axis of the graph. c. does not shift because the price of peaches is measured on the vertical axis of the graph. d. does not shift because the price of peaches is measured on the horizontal axis of the graph.

B

Which of the following industries is least likely to exhibit the characteristic of free entry? a. ethnic restaurants b. municipal water and sewer c. corn farming d. grocery stores

B

Which of the following statements about agriculture in the U.S. is not correct? a. From the 1950s to today, agricultural output has increased about five times. b. Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology. c. Increasing the supply of agricultural products typically benefits consumers but harms farmers. d. Technological improvements typically increase supply and decrease revenue for farmers.

A

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss? a. The greater are the price elasticities of supply and demand, the greater is the deadweight loss. b. The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss. c. The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss. d. The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.

D

Which of the following steps does an economist take when studying the economy? a. devise theories b. collect data c. analyze data d. All of the above are correct.

C

Which of these statements best represents the law of supply? a. When input prices increase, sellers produce less of the good. b. When production technology improves, sellers produce less of the good. c. When the price of a good decreases, sellers produce less of the good. d. When sellers' supplies of a good increase, the price of the good increases.