Introduction to Microeconomics Quizzes

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A price setter is a firm that: *A)* Faces perfectly inelastic demand. *B)* Attempts but fails to be perfectly competitive. *C)* Has the ability to set price at any level it wishes. *D)* Has some degree of control over its price

If the demand for a good is highly elastic, that good is likely to have: *A)* Many close substitutes *B)* Few close substitutes *C)* Many close complements *D)* Few close complements

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? *A)* Public goods *B)* Private goods *C)* Quasi-public goods *D)* Common resources

The most important challenge facing a firm in a perfectly competitive market is deciding: *A)* Whether to maximize its profits. *B)* How much to produce *C)* Whether to advertise *D)* What price to charge

The movement of individuals and households from one income quintile to another over time is called: *A)* Wealth turnover *B)* Income mobility *C)* The ratchet effect *D)* Income averaging

A bond is a(n): *A)* Legal promise to repay a debt *B)* Agreement issued by a financial intermediary linking savers and investors *C)* Claim to partial ownership of a firm *D)* Regular payment made to owners of a firm

A decrease in the wage rate causes *A)* An increase in the quantity of labor demanded *B)* A decrease in labor's productivity *C)* A rightward shift of the firm's labor demand curve *D)* A leftward shift of the firm's labor demand curve

A firm is likely to be a natural monopoly: *A)* If economies of scale are experienced over the full range of output *B)* When the demand for its product or service is inelastic *C)* Because government grants it an exclusive franchise *D)* If it is producing an inferior good

A monopolist faces: *A)* A downward-sloping demand curve *B)* A perfectly inelastic demand curve *C)* A horizontal demand curve *D)* A perfectly elastic demand curve

A nation will import a particular product if the world price is less than the domestic price. *A)* True *B)* False

A prisoner's dilemma illustrates situations in which: *A)* There is a conflict between the narrow self-interest of individuals and the broader interests of a group *B)* Resources with the lowest opportunity cost should be used first *C)* Efficiency is an important social goal *D)* Everyone does best when each person specializes in the activities in which he or she has a comparative advantage

A rational seller will sell another unit of output: *A)* If the cost of making another unit is less than the revenue gained from selling another unit *B)* As long as the quantity demanded is greater than zero *B)* If the seller can charge more than the equilibrium price *D)* Whenever the seller is earning a profit

A variable factor of production: *A)* Is variable in both the short run and the long run *B)* Is fixed in the long run but variable in the short run *C)* Plays no role in the law of diminishing marginal returns *D)* Is variable only in the short run

A warranty on a used car is a credible signal of quality because: *A)* It would cost the seller too much to honor a warranty on a low-quality car *B)* It indicates the car is of average quality *C)* Sellers who offer warranties are more honest than most people *D)* Many used cars come with warranties

Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. *A)* True *B)* False

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has: *A)* A higher opportunity cost of taking the day off work *B)* A higher opportunity cost of working an additional hour *C)* A lower opportunity cost of driving farther to work *D)* The same opportunity cost of spending time on leisure activities

If individuals are rational, they should choose actions that yield the: *A)* Largest economic surplus *B)* Largest total benefits *C)* Smallest economic surplus *D)* Smallest total costs

An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. To maximize total output, Paula should specialize in producing __ while Ricardo should specialize in producing __. *A)* Shirts / computers *B)* Shirts / shirts *C)* Computers / shirts *D)* Computers / computers

An excise tax on imported items is known as a(n): *A)* Tariff *B)* Export restriction *C)* Price ceiling *D)* Quota

As a consequence of the problem of scarcity: *A)* Individuals have to make choices from among alternatives *B)* Only some people can "have it all" *C)* Things which are plentiful have relatively high prices *D)* There is never enough of anything

Carson and Fran are both thrill seekers. Carson has health insurance and Fran does not. One can predict that: *A)* Fran will engage in fewer dangerous activities *B)* Carson's health insurance will not affect Carson's behavior *C)* Carson and Fran will participate in the same number of dangerous activities *D)* Carson will engage in fewer dangerous activities

Conceptually, the efficient level of carbon emissions is the level for which *A)* The marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions *B)* The marginal benefit of reducing carbon emissions is maximized *C)* The marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized *D)* The marginal cost of reducing carbon emissions is minimized

Demand tends to be __ in the short run than in the long run. *A)* Less elastic *B)* Less important *C)* More variable *D)* More elastic

Dumping is the sale of a product in a foreign market: *A)* At a price below its domestic price or cost of production *B)* That does not meet the quality standards in the domestic market *C)* And is encouraged by voluntary export restraints *D)* And is the principal means used to enforce nontariff barriers

Financial intermediaries, such as commercial banks, provide benefits to: *A)* Both savers and borrowers *B)* Borrowers only *C)* The government only *D)* Savers only

If the price elasticity of demand for a good is greater than one, then the demand for that good is: *A)* Elastic *B)* Unit elastic *C)* Perfectly elastic *D)* Inelastic

Imposing a minimum wage above the equilibrium wage: *A)* Makes some workers worse off *B)* Makes all workers better off *C)* Increases the size of the total wage bill *D)* Lowers labor costs

In a competitive labor market, the equilibrium wage rate is determined by: *A)* Labor demand and labor supply *B)* Employees *C)* Employers *D)* Government regulation

In general, a nation can enjoy a higher standard of living by __ than by being self sufficient. *A)* Specialization and trading *B)* Increasing its versatility *C)* Avoiding trade with other nations *D)* Taxing imported goods

In recent years, most immigrants to the United States have come from Latin America and Asia *A)* True *B)* False

In the United States, government policies with respect to monopolies and collusion are embodied in: *A)* Antitrust laws *B)* Common law, which the United States adopted from English law *C)* The Supreme Court. *D)* The U.S. Constitution

Monopolistic competition is characterized by a: *A)* Large number of firms and low entry barriers *B)* Few dominant firms and low entry barriers *C)* Few dominant firms and substantial entry barriers *D)* Large number of firms and substantial entry barriers

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. *A)* True *B)* False

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly? *A)* No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes *B)* Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry *C)* No, Peet's is not a monopoly because there are many branches of Peet's *D)* Yes, there are no substitutes to Peet's coffee

The lemons problem gives the owners of above-average-quality used cars an incentive to: *A)* Offer a warranty when selling their cars *B)* Ask for a sales price that is higher than the blue book value of their car *C)* Exaggerate the quality of their cars when selling them *D)* Understate the true quality of their cars when selling them

The marginal product of labor is *A)* The additional output a firm produces as a result of hiring one more worker *B)* The change in a firm's revenue as a result of hiring one more worker *C)* The payment made to workers for their contribution to the output they produce *D)* Equal to the demand for labor

A regular payment received by stockholders for each share they own is called a: *A)* Bond *B)* Dividend *C)* Capital gain *D)* Coupon payment

Regular interest payments made to bondholders are called __ payments. *A)* Coupon *B)* Dividend *C)* Diversification *D)* Reserve

Specialization in production is important primarily because it: *A)* Results in greater total output *B)* Allows society to have fewer capital goods *C)* Allows society to trade by barter *D)* Allows society to avoid the coincidence-of-wants problem

Stockholders receive returns on their financial investment in the form of __ and __. *A)* Capital gains / dividends *B)* Coupon payments / capital gains *C)* Interest payments / dividends *D)* Capital gains / interest payments

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is: *A)* 5 *B)* 375 *C)* 125 *D)* 41.67

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways? *A)* More drivers would drive on the non-toll road, making the toll road less congested *B)* Traffic would remain evenly divided between the two roads as drivers continuously sought the less-congested route *C)* More drivers would drive on the toll road making the non-toll road less congested *D)* Traffic would decrease on both roads

TANF stands for Temporary Assistance for Needy Families *A)* True *B)* False

Tariffs and import quotas would benefit the following groups, except: *A)* Consumers of the product *B)* Workers in domestic firms producing the product *C)* Domestic producers of the product *D)* The government of the importing country

The Supplemental Nutrition Assistance Program (SNAP): *A)* Was previously known as the food-stamp program *B)* Added assistance to the food-stamp program by targeting children *C)* Has been subject to widespread fraud through the illegal reproduction of paper food-stamp coupons *D)* Was created to supplement the food consumption of low-income Social Security recipients

The TANF program is designed to: *A)* Shift people from welfare to employment *B)* Provide income to the blind and disabled *C)* Increase the minimum wage *D)* Provide medical insurance to poverty level workers

The coupon rate is the: *A)* Interest rate promised when a bond is issued *B)* Maximum interest rate that can be paid on a bond *C)* Amount originally lent *D)* Regular payment of interest to a bondholder

The demand for labor is described as a derived demand because *A) It is derived from the demand for products that use labor in the production process *B)* It is derived by producers seeking to make profits by starting new businesses *C)* It is derived by workers seeking to earn income to fund the consumption of goods and services *D)* It is derived from government institutions which rely on labor markets for the purpose of raising tax revenue

The firm's gain in profit from hiring another worker is *A)* The difference between marginal revenue product and the wage of the worker *B)* The reduction in costs from hiring another worker *C)* The extra output of the extra worker *D)* The marginal revenue product of the extra worker

The following are commonly-used arguments for protection against imports, except: *A)* Price- and profit-maintenance *B)* Self-sufficiency and diversification-for-stability *C)* Infant industry protection *D)* Protection against dumping

The incentive function of prices: *A)* Indicates that price increases bring forth more of that resource. *B)* Only applies to land. *C)* Is the idea that competitive markets will always clear. *D)* Applies to all resources

The largest efficiency gains from deregulation have occurred in the: *A)* Airlines, trucking, and railroad industries *B)* Communications and stock-brokering industries *C)* Natural gas and cable television industries *D)* Cable television and railroad industries

The market system: *A)* Effectively harnesses the incentives of workers and entrepreneurs *B)* Is not consistent with freedom of choice in the long run *C)* Has slowly lost ground to emerging command systems *D)* Produces considerable inefficiency in the use of scarce resources

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers. *A)* True *B)* False

The pattern in which insurance is purchased more frequently by those who are the most costly for companies to insure is referred to as: *A)* Adverse selection *B)* Risk aversion *C)* Moral hazard *D)* Statistical discrimination

There is 5 percent average tax on imported goods in the United States. This tax is known as a(n) __. *A)* Tariff *B)* Sales tax *C)* Quota *D)* Income tax

Under monopolistic competition, entry to the industry is: *A)* More difficult than under pure competition but not nearly as difficult as under pure monopoly *B)* Completely free of barriers *C)* More difficult than under pure monopoly *D)* Blocked

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically: *A)* Positive *B)* Negative *C)* Greater than one *D)* Less than one

When more firms enter an industry: *A)* The industry supply curve will shift right *B)* The amount produced by each of the new firms will be less than the amount produced by each of the original firms *C)* The amount produced by each of the new firms will be greater than the amount produced by each of the original firms *D)* The industry supply curve will shift left

When there is a negative externality, the competitive output is greater than the economically efficient output level. *A)* True *B)* False

Which branch of economics is most likely to study differences in countries' growth rates? *A)* Macroeconomics *B)* Experimental economics *C)* Normative economics *D)* Microeconomics

Which of the following conditions holds in an economically efficient competitive market equilibrium? *A)* There are no positive and no negative external effects from consumption and production *B)* The deadweight loss is positive but at a minimum *C)* Producer and consumer surplus are exactly equal in size *D)* The marginal benefit of the last unit produced and consumed is maximized

Which of the following describes how a positive externality affects a competitive market? *A)* The externality causes a difference between the private benefit from consumption and the social benefit *B)* The externality causes quantity demanded to exceed quantity supplied *C)* The externality causes a difference between the social cost of production and the social cost of consumption *D)* The externality causes a difference between the private benefit from production and the social cost of production

The primary objective of most private firms is to: *A)* Maximize output *B)* Maximize revenue *C)* Minimize cost *D)* Maximize profit

Which of the following firms is most likely to be a pure monopolist? *A)* The only gas station in a small, isolated town *B)* A grocery store in a large city *C)* The most popular hot dog vendor on a city street corner *D)* A clothing retailer with the best location in a mall

Which of the following is a defining characteristic of all perfectly competitive markets? *A)* All firms sell the same standardized product *B)* Consumers display strong brand loyalty *C)* Each firm in the market faces a perfectly inelastic demand curve *D)* The market demand curve is perfectly elastic

Which organization meets regularly to establish rules and settle disputes related to international trade? *A)* The World Trade Organization *B)* The United Nations Commission on Trade Law *C)* The United Nations Conference on Trade and Development *D)* The World Economic Forum

While labor unions tend to negotiate above-equilibrium wage rates for their members, they also tend to reduce the quantity of labor hired. *A)* True *B)* False

[GRAPH] (Advanced analysis) The equation for the supply curve in the below diagram is approximately: *A)* P = 4 + 1/3Q. *B)* P = 4 + 2Q. *C)* P = 4 - 3Q. *D)* P = 4 + 3Q

[GRAPH] For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. As the market price of this good increases, the quantity produced by this seller will __. *A)* Increase *B)* Decrease *C)* Stay the same until the price rises above $6 per unit, and then it will increase *D)* Stay the same

[GRAPH] Refer to the accompanying figure. A decrease in supply is represented by a shift from: *A)* Curve B to curve A *B)* Curve D to curve C *C)* Curve A to curve B *D)* Curve C to curve D

[GRAPH] Refer to the accompanying figure. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure: *A)* The equilibrium quantity will increase and the equilibrium price will increase *B)* The equilibrium quantity will decrease and the equilibrium price will increase *C)* The equilibrium quantity will increase and the equilibrium price will decrease *D)* The equilibrium quantity will decrease and the equilibrium price will decrease

[GRAPH] Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 illustrates a(n): *A)* Increase in demand *B)* Increase in quantity demanded *C)* Decrease in demand *D)* Decrease in quantity demanded

[GRAPH] Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will: *A)* Shift to S(A) *B)* Not change; only the quantity supplied will change *C)* Not change because a change in the price of plastic will not affect the demand for action figures *D)* Shift to S(B)

[GRAPH] Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect: *A)* The demand curve to shift to D(B) in anticipation of higher future prices *C)* Neither a change in quantity demanded nor a shift in demand because next year's coffee crop will not affect the current demand for coffee *C)* An increase in the quantity of coffee demanded, but no shift in the demand curve *D)* The demand curve to shift to D(A) in anticipation of higher future prices

[GRAPH] Refer to the accompanying figure. What is the slope of the supply curve? *A)* 1/2 *B)* 1 *C)* 4 *D)* 2

[GRAPH] Refer to the accompanying table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out? *A)* 3 *B)* 2 *C)* 4 *D)* 5

[GRAPH] Refer to the accompanying table below. The marginal benefit of the 6th unit of activity is: *A)* $2 *B)* $1 *C)* $4 *D)* $7

[GRAPH] Refer to the accompanying table. The marginal utility of consuming the 2nd apple is: *A)* 15 *B)* 10 *C)* 20 *D)* 35

[GRAPH] Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing price for this monopolist to charge is: *A)* B *B)* E *C)* C *D)* A

[GRAPH] The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. *A)* Curve A above curve C *B)* Curve C to the right of curve A *C)* Curve B to the right of curve A *D)* Curve A above curve B

[GRAPH] The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. In the graph above, the average variable cost curve is labeled __, the average total cost curve is labeled __, and the marginal cost curve is labeled __. *A)* C / B / A *B)* A / B / C *C)* B / C / A *D)* C / A / B

[GRAPH] Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing? *A)* A only *B)* B only *C)* C only *D)* A and C

A legal limit on the quantity of a good that may be imported is called a(n) __. *A)* Import tax *B)* Quota *C)* Trade limit *D)* Tariff

A low concentration ratio means that: *A)* There is a low probability of entering the industry *B)* Each firm accounts for a small market share of the industry *C)* Each firm accounts for a large market share of the industry *D)* There is a low probability of success in the industry

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a: *A)* Nontariff barrier *B)* Quota *C)* Voluntary export restriction *D)* Tariff

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: *A)* The likelihood of collusion *B)* Product differentiation *C)* High entry barriers *D)* Mutual interdependence in decision making

A profit-maximizing perfectly competitive firm must decide: *A)* Only on which industry to join, taking price and output as fixed *B)* Only on how much to produce, taking price as fixed *C)* Both what price to charge and how much to produce *D)* Only on what price to charge, taking output as fixed

A tariff is a tax imposed on __ good. *A)* An illegal *B)* An imported *C)* A luxury *D)* A domestic

An import-licensing requirement, or import restrictions pertaining to the product quality and safety, are examples of: *A)* Protective tariffs *B)* Nontariff barriers *C)* Quotas on imported products *D)* Voluntary export restrictions

An organization of employees that has the legal right to bargain with employers about wages and working conditions is called a *A)* Monopsony *B)* Labor union *C)* Closed shop *D)* Guild

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to: *A)* Stay the same. *B)* Decrease *C)* Equal the price of pizza *D)* Increase

Assume that the average male wage rate is 20 percent higher than the average female wage rate. One can infer that: *A)* Customers overvalue male employers, so employers pay males more *B)* This is evidence of discrimination only if all factors affecting productivity are equal *C)* This is evidence of discrimination because females should be paid the same as males *D)* Employers undervalue female employees, so they're able to pay them less

Dividing the total cost of undertaking n units of an activity by n reveals the: *A)* Marginal cost. *B)* Average cost *C)* Units per cost *D)* Average benefit

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. After the third pie, your total utility: *A)* Was zero *B)* Decreased *C)* Increased, but by less than for the first three pies *D)* Stayed the same

Free trade is __, because it __ the size of the pie available to the economy. *A)* Efficient / decreases *B)* Efficient / increases *C)* Inefficient / decreases *D)* Inefficient / increases

Generally, __ motivates firms to enter an industry, while __ motivates firms to exit an industry. *A)* Accounting profit / accounting loss *B)* Economic profit / economic loss *C)* Accounting profit / economic loss *D)* Economic profit / accounting loss

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is: *A)* Following the Scarcity Principle *B)* Following the Cost-Benefit Principle *C)* Not rational *D)* Not following the Cost-Benefit Principle

If cross-price elasticity of demand between two goods is positive, the two goods are: *A)* Normal *B)* Substitutes *C)* Complements *D)* Inferior

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are: *A)* Normal goods *B)* Complements *C)* Inferior goods *D)* Substitutes

Import tariffs benefit the consumers of the product involved. *A)* True *B)* False

In competitive labor markets, __ demand labor and __ supply labor. *A)* Labor unions / firms *B)* Firms / workers *C)* Firms/ labor unions *D)* Workers / firms

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads? *A)* People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses *B)* People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally *C)* People are generally loss averse, feeling losses more intensely than gains *D)* People judge good and bad outcomes relative to the status quo

In general, perfectly competitive firms maximize their profit by producing the level of output at which: *A)* Average cost equals price *B)* Marginal cost equals price *C)* Total cost is minimized *D)* Average cost is minimized

In the market for used cars, the lemons model predicts that: *A)* Sellers are less likely to sell low-quality cars than high-quality cars *B)* Sellers are more likely to sell low-quality cars than high-quality cars *C)* Buyers are more likely to overstate their reservation price *D)* Sellers are more likely to understate the condition of their cars

In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed? *A)* Pure competition, oligopoly, pure monopoly, monopolistic competition *B)* Pure competition, monopolistic competition, oligopoly, pure monopoly *C)* Oligopoly, pure competition, monopolistic competition, pure monopoly *D)* Monopolistic competition, pure competition, pure monopoly, oligopoly

Issuing tradable emission allowances to polluting firms will result in those firms polluting more than is socially desirable. *A)* True *B)* False

Logrolling may result in *A)* Members of Congress selling their votes on proposed legislation to the highest bidder *B)* A majority of Congress supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group *C)* Legislation that yields economy-wide benefits, the funding for which is borne primarily by a few of the smallest states *D)* Creating limited incentives for policymakers to consider the immediate consequences of their proposed legislation

Marginal cost is calculated as: *A)* Total revenue minus total costs *B)* The change in total cost divided by the change in output *C)* The percentage change in total costs divided by the percentage in output *D)* The change in output divided by the change in total costs

Marginal utility can be: *A)* Positive or negative, but not zero *B)* Positive, negative, or zero *C)* Decreasing, but not negative *D)* Positive, but not negative

Morgan lives in San Francisco and likes to dine out. Morgan has noticed that prices at restaurants near popular tourist destinations in the city tend to be higher than at restaurants of the same quality in other neighborhoods. One reason for this is that: *A)* Tourists don't worry about money while on vacation *B)* Search costs are higher for people who are unfamiliar with the area *C)* Restaurant meals are a small fraction of the total cost of a vacation *D)* Residents don't like to eat in restaurants frequented by tourists

One implication of the shape of the demand curve facing a perfectly competitive firm is that: *A)* If the firm decreases its price below the market price, it will earn higher revenue *B)* If the firm increases its price above the market price, it will earn zero revenue *C)* If the firm increases its price above the market price, it will earn higher revenue *D)* The market would be unable to reach a new equilibrium if demand changed

The median voter theorem implies that *A)* People in the political middle will be dissatisfied with the amount of spending on government funded projects *B)* Many people will be dissatisfied with the amount of spending on government funded projects *C)* Spending on government funded projects reflects the preferences of only those far away from the median *D)* Many people will be satisfied with the amount of spending on government funded projects

One important difference between the political process and the market process is that *A)* The political process results in collective actions in which everyone is made better off, while the market process results in actions that favor some groups only *B)* The political process results in collective actions in which everyone is obliged to participate, while in the market process individuals are free to participate or not *C)* The political process results in collective actions in which not everyone is required to participate, while in the market process individuals are obliged to participate *D)* The political process results in collective actions that maximize economic surplus, while the market process may lead to efficiency losses

Patents, which confer market power, are intended to: *A)* Maintain the dominance of U.S. firms *B)* Encourage innovation by helping firms recoup the costs of research and development *C)* Protect consumers from imitations or knock-offs *D)* Enable patent holders to charge lower prices for new and innovative products

Shares of stock are: *A)* Regular payments made to owners of a firm *B)* Claims to partial ownership of a firm *C)* Legal promises to make regular payments to the stockholder *D)* Legal promises to repay a debt

The basic difference in the economic effects of a tariff compared with a quota is that a: *A)* Tariff raises product prices, but a quota does not *B)* Tariff allows imports to increase if demand increases, whereas a quota does not *C)* Quota reduces domestic consumption of the product, but a tariff does not *D)* Quota raises product prices, but a tariff does not

The demand for a good is unit elastic with respect to price if the price elasticity of demand is: *A)* Less than one *B)* Equal to one *C)* Greater than negative one *D)* Greater than one

The existence of a negative externality will result in: *A)* Prices that are artificially high *B)* A greater than optimal level of production *C)* Elimination of deadweight loss *D)* A less than optimal level of production

The extra benefit that results from carrying out one additional unit of an activity is the __ of the activity. *A)* Economic benefit *B)* Marginal benefit *C)* Total benefit *D)* Average benefit

The idea in economics that "there is no free lunch" means that: *A)* The thought of a free lunch is often better than the reality of consuming it *B)* There are opportunity costs involved even in free lunches *C)* Businesses would go bankrupt if they offered free lunches *D)* Free lunches used by businesses to attract customers is an inefficient marketing ploy

The law of diminishing returns explains why: *A)* Total cost eventually falls *B)* Total cost eventually rises faster and faster *C)* Total cost eventually rises more and more slowly *D)* Total cost eventually reaches a maximum point

The level of income below which the federal government classifies a family as poor is called the: *A)* Relative measure of poverty *B)* Poverty threshold *C)* Absolute measure of poverty *D)* Median income threshold

The monopolist will maximize profits at the output level for which: *A)* Price equals marginal cost *B)* Marginal revenue equals marginal cost *C)* Marginal revenue equals average total cost *D)* Price equals average total cost

The price elasticity of demand for a good measures the responsiveness of: *A)* Price to a 1 percent change in the demand for that good *B)* Quantity demanded to a 1 percent change in price of that good *C)* Price to a 1 percent change in the quantity demanded of that good *D)* Demand to a 1 percent change in price of that good

The price equals marginal cost rule for profit maximization is a specific example of which core principle? *A)* The Scarcity Principle *B)* The Cost-Benefit Principle *C)* The Efficiency Principle *D)* The Principle of Comparative Advantage

The term oligopoly indicates *A)* Many producers of a differentiated product. *B)* A few firms producing either a differentiated or a homogeneous product *C)* A one-firm industry *D)* An industry whose four-firm concentration ratio is low

What is a "social cost" of production? *A)* The cost of the environmental damage created by production *B)* The sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product *C)* The total costs of producing a product, both implicit and explicit costs *D)* The cost of the natural resources used up in production

What is the term that explains why voters often lack knowledge of pending legislation, and lack knowledge of the views of candidates for office on a range of issues that affect their own (the voters') welfare? *A)* Logrolling *B)* Rational ignorance *C)* Regulatory capture *D)* The voting paradox

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes: *A)* An inferior good *B)* The substitution effect *C)* The rationing function of prices *D)* The income effect

When there is a positive externality in a free market, too much of the good is produced and consumed. *A)* True *B)* False

Which branch of economics is most likely to study differences in countries' growth rates? *A)* Microeconomics *B)* Macroeconomics *C)* Experimental economics *D)* Normative economics

Which of the following could be evidence of a market failure? *A)* Resources in an economy are not fully utilized *B)* Market prices do not reflect true production costs *C)* The market price of a product is above the average cost of production *D)* There are only a handful of firms competing against each other in an industry

Which of the following displays rivalry and excludability in consumption? *A)* Public goods *B)* Private goods *C)* Quasi-public goods *D)* Common resources

[GRAPH] Suppose a monopolist faces the following demand curve. If the monopolist were to sell 20 units of output, its total revenue would be: *A)* $140 *B)* $1,000 *C)* $100 *D)* $50

A monopoly that results from economies of scale is called a(n): *A)* Large-scale monopolist *B)* Cost-plus firm *C)* Antitrust violator *D)* Natural monopoly

Which of the following is an example of a positive externality? *A)* A police department stops enforcing DUI laws *B)* Planting trees along a sidewalk which add beauty and create shade *C)* Raising the speed limit to 60 mph in school zones *D)* Permitting smoking on commercial airplanes

Which of the following statements is true? *A)* Comparative advantage requires absolute advantage *B)* Comparative advantage does not require absolute advantage *C)* Absolute advantage implies comparative advantage *D)* Absolute advantage requires comparative advantage

Which of the following would not shift the demand curve for beef? *A)* A change in the incomes of beef consumers. *B)* A reduction in the price of cattle feed. *C)* An effective advertising campaign by pork producers. *D)* A widely publicized study that indicates beef consumption increases one's cholesterol

Which of the following would result in a positive externality? *A)* McDonald's eliminates all salads from its menu *B)* Medical research results in a cure for malaria *C)* A local government establishes a price ceiling on rental apartments *D)* An electric utility burns coal that causes acid rain

[GRAPH] Answer the question on the basis of the given supply and demand data for wheat. Refer to the data. Equilibrium price will be: *A)* $3 *B)* $2 *C)* $1 *D)* $4

[GRAPH] Consider the accompanying figure representing the labor market below. If a minimum wage of $12 per hour is imposed in this labor market, then: *A)* 400 workers will earn $12 an hour *B)* 200 workers will lose their jobs *C) Worker surplus will fall *D)* Total earnings will rise

[GRAPH] Refer to the accompanying figure. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will __ and the equilibrium quantity will __. *A)* Fall / fall *B)* Fall / rise *C)* Rise / rise *D)* Rise / fall

[GRAPH] Refer to the accompanying figure. At a price of $3, there will be: *A)* An excess demand of 7 units *B)* An excess demand of 5 units *C)* An excess supply of 7 units *D)* An excess supply of 2 units

[GRAPH] Refer to the accompanying figure. At a price of $9, there will be: *A)* An excess demand of 5 units *B)* An excess supply of 5 units *C)* An excess demand of 1 unit *D)* An excess supply of 6 units

[GRAPH] Refer to the accompanying table below. The marginal cost of the 4th unit of activity is: *A)* $10 *B)* $8 *C)* $6 *D)* $5

[GRAPH] Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be: *A)* $13 *B)* $16 *C)* $19 *D)* $10

[GRAPH] Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then *A)* 0F represents a price that would result in a surplus of AC *B)* 0F represents a price that would result in a shortage of AC *C)* A surplus of GH would occur *D)* At any price above 0G a shortage would occur

[GRAPH] Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n): *A)* Increase in the number of firms producing X *B)* Increase in the wage rates paid to laborers employed in the production of X *C)* Decline in the price of the basic raw material used in producing X *D)* Government subsidy per unit of output paid to firms producing X

[GRAPH] Refer to the diagram. If this is a competitive market, price and quantity will move toward: *A)* $60 and 100, respectively *B)* $40 and 150, respectively *C)* $60 and 200, respectively *D)* $20 and 150, respectively

[GRAPH] Suppose that this graph describes the current labor market for high school teachers. If the wage is w*, then: *A)* Teachers will be underpaid. *B)* There will be neither a shortage nor a surplus of certified teachers *C)* There will be a surplus of certified teachers *D)* There will be a shortage of certified teachers

[GRAPH] Suppose that this graph describes the current labor market for high school teachers. Suppose supply of labor decreases. At the new equilibrium, wages would be __ and __ teachers would be hired. *A)* Lower / more *B)* Higher / fewer *C)* Higher / more *D)* Lower / fewer

[GRAPH] The accompanying graph depicts demand. At point A, demand is: *A)* Perfectly elastic *B)* Elastic *C)* Unit elastic *D)* Inelastic

[GRAPH] The graph above shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate unemployed resources? *A)* D only *B)* E and A only *C)* B and C only *D)* B and A only

A carbon tax which is designed to reduce pollution is an example of a *A)* Government administrative rule *B)* Noneffective incentive *C)* Market-based policy *D)* Command-and-control policy

A firm that produces a good with many substitutes will most likely find that: *A)* Raising its price will increase total revenue *B)* Lowering its price will not affect total revenue *C)* Lowering its price will increase total revenue *D)* Lowering its price will decrease total revenue

A fixed factor of production: *A)* Is common in large firms but rare in small firms *B)* Is fixed in both the short run and the long run *C)* Is fixed only in the short run *D)* Is fixed in the long run, but variable in the short run

A high concentration ratio indicates that: *A)* The industry is highly profitable *B)* Many firms produce most of the output in an industry *C)* Few firms produce most of the output in an industry *D)* The industry is highly competitive

A major purpose of usury laws is to make more funds available to low-income borrowers. Economic analysis suggests that usury laws: *A)* Help low-income people only when the legal interest rate is above the market rate *B)* Are effective in achieving this goal *C)* Allocate available funds to high-income borrowers *D)* Have no impact on the allocation of funds between high-income and low-income people

A monopoly is the only seller of a product: *A)* With many substitutes. *B)* With a perfectly inelastic demand. *C)* Without a close substitute. *D)* Without a well-defined demand curve

A positive externality results when *A)* Economists are sure that a good or service provides benefits to consumers *B)* People who live in one country benefit from the production of a good or service that occurs in another country *C)* People who are not directly involved in producing or paying for a good or service benefit from it *D)* Someone pays for a good or service even though she is not directly affected by the production or consumption of it

A product is considered to be nonexcludable if *A)* Your consumption of the product reduces the quantity available for others to consume *B)* You can keep those who did not pay for the item from enjoying its benefits *C)* You cannot keep those who did not pay for the item from enjoying its benefits *D)* It is jointly owned by all members of a community

A seller's supply curve shows the seller's: *A)* Willingness to pay for an additional unit of output at each quantity *B)* Hourly wage for producing an additional unit of output at each quantity *C)* Opportunity cost of producing an additional unit of output at each quantity *D)* Profit from producing an additional unit of output at each quantity

All else equal, the price elasticity of demand tends to be higher when: *A)* The time horizon is relatively short *B)* Supply increases *C)* A good has many substitutes *D)* People spend a small fraction of their budget on the good

An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Ricardo to produce one computer? *A)* ¼ shirt *B)* ½ shirt *C)* 2 shirts *D)* 4 shirts

An externality is *A)* A cost paid for by the producer of a good or service *B)* Anything that is external or not relevant to the production of a good or service *C)* A benefit or cost experienced by someone who is not a producer or consumer of a good or service *D)* A benefit realized by the purchaser of a good or service

Another way of saying "ceteris paribus" is: *A)* In reality *B)* Because of this *C)* Other things equal *D)* In general

Economic analysis assumes "purposeful behavior", which means that people will pursue decisions or actions: *A)* Without any logical faults *B)* Always based on full or complete information *C)* That will increase their well-being *D)* With minimal consideration for their emotions

Economic profits are: *A)* The sum of accounting profits and implicit costs *B)* Equal to the difference between total revenues and implicit costs *C)* Equal to the difference between accounting profits and implicit costs *D)* Always larger than accounting profits

Economics is best defined as the study of: *A)* Whether we will have enough resources in the future *B)* The role of government in limiting the choices people make *C)* Choice in the face of limited resources *D)* The financial concerns of businesses and individuals

Few firms in the United States are monopolies because: *A)* Most firms produce products for which there are no close substitutes *B)* Monopolies are technically illegal in the United States *C)* When a firm earns profits, other firms will enter its market *D)* Few firms experience economies of scale

Interest is the: *A)* Expectation of a future return on investment *B)* Opportunity cost of time *C)* Price paid for the use of money *D)* Reward for consuming rather than saving

Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town. The most likely reason for this is that: *A)* Freeway exit stations sell a higher quality product *B)* Demand for gas at freeway exits is lower than it is in the middle of town *C)* People who buy gas at freeway exit stations tend to have higher search costs *D)* Freeway exit stations are more likely to have an attached convenience store

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to: *A)* 0.30 *B)* 30 *C)* 3 *D)* 0.333

If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because *A)* Too little of the good will be produced *B)* A deadweight loss will occur that is equal to the area under the demand curve for the good *C)* Too much of the good will be produced *D)* Economic surplus is maximized

In competitive labor markets, __ demand labor and __ supply labor. *A)* Workers / firms *B)* Labor unions / firms *C)* Firms / workers *D)* Firms / labor unions

In economics, the term "free rider" refers to *A)* A person who evades taxes *B)* A supervisor who delegates menial time-consuming activities to others *C)* One who waits for others to produce a good and then enjoys its benefits without paying for it *D)* One who volunteers her services

In general, individuals and nations should specialize in producing those goods for which they have a(n): *A)* Absolute advantage and a comparative advantage. *B)* Absolutely comparative advantage. *C)* Comparative advantage *D)* Absolute advantage

In terms of improving the standard of living of the poor, one drawback on the earned income tax credit (EITC) is that: *A)* It's only available to individuals whose incomes are above a certain threshold *B)* It provides workers with in-kind transfers *C)* It provides no benefits to people who are unemployed *D)* It gives firms a strong incentive to lay off low-wage workers

Information about the quality of a product is *A)* Intangible, and therefore not subject to economic principles. *B)* Subject to economic principles only when it is paid for, for example by subscribing to Consumer Reports or by hiring a financial advisor *C)* Both beneficial to have and costly to obtain, and therefore subject to economic principles *D)* Impossible to objectively assess, and therefore not subject to economic principles

Monopolistic competition means: *A)* Market situation where competition is based entirely on product differentiation and advertising *B)* A few firms producing a standardized or homogeneous product *C)* Many firms producing differentiated products. *D)* A large number of firms producing a standardized or homogeneous product

Most cartels cease to be effective because: *A)* Consumers discover the cartel and buy from other firms instead *B)* The dominant firm buys out the other firms *C)* Of the incentive to cheat on the cartel agreement *D)* Of strict enforcement of antitrust legislation

Normative economic principles are concerned with how people __ make decisions while positive economic principles are concerned with how people __ make decisions. *A)* In power / in ordinary life *B)* Do / should *C)* Should / do *D)* In ordinary life / in power

Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as *A)* Internalizing an external cost *B)* Excludability *C)* Free riding *D)* Public rivalry

Pollution is an example of a *A)* Private cost. *B)* Public good. *C)* Negative externality *D)* Positive externality

Protectionism is the view that free trade is __ and should be __. *A)* Illegal / forbidden *B)* Inevitable / allowed *C)* Harmful / restricted *D)* Helpful / encouraged

Rationally, search should continue until: *A)* All search options have been explored *B)* The marginal benefit of search is zero *C)* The marginal benefit of search equals the marginal cost of search *D)* The marginal cost of search is zero

Which expression is used to calculate the future value of an amount of money? *A)* Present Value x (1 + time)^interest rate *B)* (1 + interest rate)^time/Present Value *C)* Present Value x (1 + interest rate)^time *D)* Present Value/(1 + interest rate)^time

Since its inception in 1996, the Temporary Assistance for Needy Families (TANF) program has: *A)* Aided the poor by automatically increasing welfare payments when inflation occurs *B)* Increased, rather than reduced, the number of people on welfare *C)* Reduced the number of people on welfare by more than one-half *D)* Greatly increased the unemployment rate

The Scarcity Principle states that: *A)* Society will eventually run out of resources *B)* Some countries have fewer resources than others *C)* With limited resources, having more of one thing means having less of another *D)* People don't have enough money to buy what they want

The additional output a firm gets from hiring an additional unit of labor is the *A)* Total product of labor *B)* Average product of labor *C)* Marginal product of labor *D)* Value of the marginal product of labor

The additional utility gained from consuming an additional unit of a good is called: *A)* A util *B)* Costly utility *C)* Marginal utility *D)* Total utility

The antitrust laws are based on the: *A)* View that nonprice competition should be strictly regulated by government *B)* Creative destruction view of competition *C)* Idea that competition leads to greater economic efficiency than does a monopoly *D)* View that all negative externalities should be eliminated by government action

The division of labor means that: *A)* Unskilled workers outnumber skilled workers *B)* Each worker performs a large number of tasks *C)* Workers specialize in various production tasks *D)* Labor markets are geographically segmented

The field of economics that would be most concerned with a recent fall in interest rates is: *A)* Microeconomics. *B)* Marginal economics. *C)* Macroeconomics *D)* Economics naturalism

The income and substitution effects account for: *A)* Movements along a given supply curve *B)* The upward-sloping supply curve *C)* The downward-sloping demand curve *D)* Shifts in the demand curve

The law of diminishing returns implies: *A)* The more hours you spend studying per day, the more you will learn with each added hour *B)* Your understanding will be increased by decreasing your marginal study time *C)* Eventually, the more hours you spend studying per day, the less you will learn with each added hour *D)* The more hours you spend studying the less you will know

The marginal benefit of an activity is the: *A)* Total benefit of an activity divided by the level of the activity *B)* Total benefit associated with an extra unit of the activity *C)* Extra benefit associated with an extra unit of the activity *D)* Same as the total benefit of an activity

The median voter theorem states that the outcome of a majority vote *A)* Is determined by the average consumer and producer in an economy *B)* Tends to favor the preferences of high-income individuals and ignore the median voter *C)* Is likely to represent the preferences of the voter who is in the political middle *D)* Is likely to represent the preferences of society's middle-income voter

The most direct effect of immigration is *A)* A decrease the labor demand *B)* An increase the labor demand *C)* An increase the labor supply *D)* A decrease the labor supply

The opportunity cost of constructing a new public highway is the: *A)* Value of shorter driving times and distances when the new highway is completed *B)* Expected cost of constructing the new highway in a future year *C)* Value of other goods and services that are sacrificed in order to construct the new highway *D)* Money cost of hiring contractors and construction workers for the new highway

The optimal amount of information to acquire before making a purchase is: *A)* Zero *B)* The amount such that the total cost of acquiring information equals the total benefit *C)* The amount such that the marginal cost of acquiring information equals the marginal benefit *D)* As much as possible

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called: *A)* Risk reservation *B)* Allocation *C)* Diversification *D)* Following the risk premium

The profit maximizing rule MR = MC applies to: *A)* Monopolists only *B)* Imperfectly competitive firms only *C)* All firms *D)* Perfectly competitive firms only

Usury laws: *A)* Allocate funds from low-productivity to high-productivity investments *B)* Make more funds available to low-income borrowers *C)* Establish a legal ceiling on interest rates. *D)* Create a surplus of loanable funds

What is meant by the term "rational ignorance"? *A)* It refers to the fact that policymakers and their constituents have different ideas of what it means to behave rationally and each party deliberately ignores the other's view *B)* It refers to a situation where one policymaker deliberately approves a bill he does not support in exchange for a future favorable vote for his own cause *C)* It means the lack an economic incentive for voters to become informed about a pending legislation *D)* It refers to the absence of a negative incentive, for example, a fine for not voting, which results in a low voter turnout

What is the United States government's formal definition of the poverty line? *A)* It is the annual income level below which a household is exempt from taxes *B)* It is a level of annual income equal to total income in society divided by the population, adjusted for a family of four *C)* It is a level of annual income equal to three times the amount of money necessary to purchase the minimum quantity of food required for adequate nutrition *D)* It is a level of annual income equal to the amount of money necessary to purchase the minimum quantity of food required for adequate nutrition

When buyers and sellers are not equally informed about the characteristics of the goods and services offered for sale, information is said to be: *A)* Symmetric *B)* Credible *C)* Asymmetric *D)* Costly-to-fake

When members of Congress vote to pass new legislation, they will *A)* Always fail to represent the underlying preferences of voters *B)* Always vote for the alternative favored by a majority of the voters *C)* Fail to consistently represent the underlying preferences of voters *D)* Always vote for the alternative favored by a plurality of the voters if there is no majority position

[GRAPH] Assume that this graph illustrates a perfectly competitive labor market. Equilibrium in this labor market is at a wage of __ per hour and an employment level of __ person-hours per day. *A)* $20 / 200 *B)* $30 / 100 *C)* $30 / 150 *D)* $20 / 125

[GRAPH] Assume that this graph illustrates a perfectly competitive labor market. Suppose a minimum wage law required the wage to be at least $20 per hour in this market. If that happened, then: *A)* There would be an excess supply of person-hours *B)* There would be excess demand for person-hours *C)* There would be no change the equilibrium number of person-hours *D)* The demand for person-hours would shift to the right

[GRAPH] For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market price of this good is $6, how many units would this seller produce? *A)* 150 *B)* 250 *C)* 300 *D)* 50

[GRAPH] Refer to the accompanying figure. An increase in demand is represented by a shift from: *A)* Curve A to curve B *C)* Curve B to curve A *C)* Curve C to curve D *D)* Curve D to curve C

[GRAPH] Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 10 cents, then this firm: *A)* Should shut down *B)* Will earn an economic loss *C)* Should produce 50 doughnuts *D)* Should shut down in the long run

[GRAPH] Refer to the accompanying figure. The equilibrium price is __, and the equilibrium quantity is __. *A)* $8 / 6 *B)* $2 / 8 *C)* $6 / 4 *D)* $4 / 6

[GRAPH] Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $15, then this firm should: *A)* Lower its output to decrease its marginal cost *B)* Shut down in the short run *C)* Produce 60 units of output *D)* Raise its price to increase its revenue

[GRAPH] Refer to the diagram. A decrease in demand is depicted by a: *A)* Shift from D1 to D2 *B)* Move from point y to point x *C)* Shift from D2 to D1 *D)* Move from point x to point y

[GRAPH] Refer to the diagram. A price of $60 in this market will result in: *A)* A shortage of 50 units *B)* Equilibrium *C)* A surplus of 100 units *D)* A surplus of 50 units

[GRAPH] Suppose a monopolist faces the following demand curve. The monopolist maximizes its profits by: *A)* Producing the level of output at which marginal revenue minus marginal cost is greatest *B)* Charging $70 for each unit *C)* Producing the level of output at which marginal revenue equals marginal cost *D)* Producing 35 units, since this is where total revenue is maximized

[GRAPH] Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research? *A)* A only *B)* B only *C)* C only *D)* D only

A cost of an activity that falls on people not engaged in the activity is called a(n): *A)* Positive externality *B)* Prisoner's dilemma *C)* External benefit *D)* Negative externality

A credible threat is: *A)* Not in the threatener's interest to carry out *B)* Legally enforceable *C)* Possible to carry out *D)* In the threatener's interest to carry out

A firm is unlikely to hire a worker if: *A)* The additional output a firms gets by hiring the worker is greater than his or her wage *B)* There are diminishing marginal returns to labor *C)* The minimum wage set by law is less than the equilibrium wage in the market *D)* The additional revenue generated by hiring the worker is less than his or her wage

A pure monopoly exists when: *A)* Only a single firm is present in the market *B)* Many firms produce a good with no close substitutes *C)* A single firm produces a good with many close substitutes *D)* A single firm produces a good with no close substitutes

A situation where a member of Congress votes to approve a bill in exchange for favorable votes from other members on other bills is called *A)* Regulatory capture *B)* Special interest legislation *C)* Rent seeking *D)* Logrolling

A tragedy of the commons occurs when a resource is *A)* Nonrival and excludable *B)* Rival and excludable *C)* Nonrival and nonexcludable *D)* Rival and nonexcludable

An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Paula to produce one computer? *A)* ¼ shirt *B)* ½ shirt *C)* 1 shirt *D)* 4 shirts

An imperfectly competitive firm is one that: *A)* Charges any price it wants *B)* Seeks to maximize revenue *C)* Faces a perfectly inelastic demand curve *D)* Has at least some influence over the market price

An individual has an absolute advantage in producing pizzas if that individual: *A)* Has a higher opportunity cost of producing pizzas than anyone else *B)* Charges the lowest price for pizzas *C)* Has a lower opportunity cost of producing pizzas than anyone else *D)* Can produce more pizzas in a given amount of time than anyone else

Cartel agreements are difficult to sustain because: *A)* Cartel members do not face the economic incentives inherent in a prisoner's dilemma *B)* The collective payoff to all the cartel members is lower when they all abide by the cartel agreement *C)* It's usually easy to discover if one of the members has cheated *D)* It's a dominant strategy for each cartel member to cheat on the cartel agreement

Digital cameras and memory cards are: *A)* Independent goods. *B)* Substitute goods. *C)* Inferior goods. *D)* Complementary goods

Economists generally favor the use of tradable emission allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism? *A)* Some environmentalists believe that the price of allowances is often too high for consumers to afford *B)* Some environmentalists oppose allowances on legal grounds; they believe the use of allowances is unconstitutional *C)* Some environmentalists believe that Pigovian taxes are a more efficient way to reduce pollution *D)* Some environmentalists believe the allowances give firms a license to pollute

Examples of command economies are: *A)* Mexico and Brazil *B)* The United States and Japan *C)* Sweden and Norway. *D)* Cuba and North Korea

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must: *A)* Increase the value of its product *B)* Lower its quality *C)* Increase its advertising *D)* Lower its price

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand? *A)* 30 *B)* 1/6 *C)* 1/3 *D)* 3

If a nation can produce a more computers per year than any other nation, that nation has a(n) __ advantage in the production of computers. *A)* Comparative *B)* Relative *C)* Natural *D)* Absolute

If official poverty statistics for the United States included transfer payments individuals receive from the government, such as Social Security payments and other non-cash benefits such as food stamps *A)* Poverty would be eliminated *B)* The poverty rate would be overstated *C)* Income inequality would be greater *D)* The poverty rate would be lower

If two goods are complements: *A)* They are necessarily inferior goods *B)* They are consumed independently *C)* An increase in the price of one will increase the demand for the other *D)* A decrease in the price of one will increase the demand for the other

In the quintile distribution of income, the term "quintile" represents: *A)* 25 percent of the income receivers *B)* 5 percent of the income receivers *C)* 10 percent of the income receivers *D)* 20 percent of the income receivers

In the simple circular flow model: *A)* There are real flows of goods, services, and resources, but not money flows *B)* Households are buyers of resources *C)* Households are sellers of final products *D)* Businesses are sellers of final products

Individual supply curves generally slope __ because __. *A)* Downward / inputs are cheaper when purchased in high volume. *B)* Upward / profits increase with quantity. *C)* Downward / sellers become more efficient with practice. *D)* Upward / of increasing opportunity costs

One problem with cost-plus regulation is that: *A)* Government ownership is often inefficient *B)* There is no way for a regulated firm's owners to recoup their opportunity costs *C)* Consumers would be willing to pay more for higher quality goods *D)* It blunts regulated firms' incentives to cut costs

Pork barrel programs are government programs that: *A)* Benefit industry *B)* Benefit agriculture *C)* Increase total economic surplus but lack political support *D)* Benefit local areas but are of questionable value from a national perspective

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15 percent fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is: *A)* Elastic *B)* Infinite *C)* Unit elastic *D)* Inelastic

The "tragedy of the commons" refers to the phenomenon where *A)* People do not internalize an externality *B)* There is rivalry in consumption *C)* Individuals are free riders *D)* People overuse a common resource

The Cost-Benefit Principle indicates that an action should be taken if: *A)* Its average benefits exceed its average costs *B)* Its net benefit (benefit minus cost) is zero *C)* Its total benefits exceed its total costs *D)* Its extra benefit is greater than or equal to its extra cost

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach? *A)* The government distributes information to consumers and producers on how to reduce pollution *B)* The government uses subsidies to encourage firms to use new technology that reduces pollution *C)* The government uses taxes in order to internalize the externalities caused by pollution *D)* The government imposes quantitative limits on the amount of pollution firms are allowed to generate

The World Trade Organization is the successor to the: *A)* United Nations Conference on Trade and Development (UNCTAD) *B)* World Customs Organization *C)* United Nations Commission on Trade Law (UNCTL) *D)* General Agreement on Tariffs and Trade (GATT)

The additional output a firm gets from hiring an additional unit of labor is the *A)* Value of the marginal product of labor *B)* Total product of labor *C)* Average product of labor *D)* Marginal product of labor

The combination of pork barrel spending and logrolling leads to: *A)* Under provision of public goods *B)* The quick termination of projects that are wasteful *C)* The largest net benefit for society *D)* Inefficiently large government spending

The coordination problem in the centrally planned economies refers to the idea that: *A)* Exports had to be equal to imports for a central plan to work *B)* The immediate effect of more investment was less consumption *C)* The price level and the level of employment were inversely related *D)* Planners had to direct required inputs to each enterprise

The earned income tax credit (or EITC): *A)* Provides tax credits to firms who hire low-income workers *B)* Reduces the tax rate on investment income *C)* Reduces the sales tax paid by low-income workers *D)* Gives low-income workers credits on their federal income taxes

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm: *A)* Produces a good with no close substitutes *B)* Coordinates their output decisions with other firms *C)* Faces high barriers to entry *D)* Faces a downward-sloping demand curve

The goal of utility maximization is to allocate your __ in order to maximize your __. *A)* Time / work *B)* Resources / desires *C)* Utility / spending *D)* Resources / satisfaction

The income and substitution effects account for: *A)* Movements along a given supply curve *B)* Shifts in the demand curve *C)* The upward-sloping supply curve *D)* The downward-sloping demand curve

The kinked-demand curve of an oligopolist is based on the assumption that: *A)* Competitors will match both price cuts and price increases *B)* Competitors will ignore a price cut but follow a price increase *C)* There is no product differentiation *D)* Competitors will follow a price cut but ignore a price increase

The larger the Herfindahl index, the: *A)* Less the degree of import competition in an industry *B)* Less the degree of market power in an industry *C)* Greater the degree of import competition in an industry *D)* Greater the degree of market power in an industry

The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why? *A)* Higher gas prices increased the benefit of driving an SUV *B)* Higher gas prices lowered the cost of driving a SUV *C)* Higher gas prices lowered the benefit of driving an SUV *D)* Higher gas prices increased the cost of driving a SUV

The lemons model is used to analyze: *A)* Markets in which search is costly *B)* The Low-Hanging-Fruit Principle *C)* The market for citrus fruit *D)* Markets with asymmetric information

The number of U.S. households with access to the Internet has grown is growing rapidly. Compared to 50 years ago, one would predict that when considering a major purchase, people today will gather: *A)* More information because the Internet has increased the cost of gathering information. *B)* Less information because the Internet has lowered the cost of gathering information *C)* Less information because the Internet has increased the benefit of gathering information *D)* More information because the Internet has lowered the cost of gathering information

The purpose of the ceteris paribus assumption used in economic analysis is to: *A)* Make sure that all relevant factors are considered *B)* Distinguish macroeconomics from microeconomics *C)* Avoid making normative statements *D)* Focus on the effect of a single factor on a certain variable

The tendency for marginal utility to decline as consumption increases beyond some point is called: *A)* The rational spending rule. *B)* Utility maximization. *C)* The law of demand. *D)* The law of diminishing marginal utility

Unlike firms that sell stock in financial markets, which are known as __ firms, companies which do not sell stock in financial markets are known as __ firms. *A)* Stock market / bond market *B)* Corporate / proprietary *C)* Open / closed *D)* Public / private

What are property rights? *A)* A legal document verifying ownership of intangible assets *B)* The right of the government to appropriate private assets for the good of society *C)* The title to ownership of any physical asset *D)* The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

What is the difference between buying stocks and buying bonds? *A)* Differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future *B)* The future growth of a stock is more uncertain than the payments of a bond *C)* A stock can possibly pay dividends forever, but bonds have a fixed number of payments *D)* All of these are differences between stocks and bonds

What is the poverty rate? *A)* The percentage of households who qualify for government assistance to meet the minimal requirement for adequate nutrition *B)* The percentage of working adults whose annual income is sufficiently low as to be are exempt from paying income taxes *C)* The rate at which the number of people relative to the size of the population fall below the poverty line *D)* The percentage of the population earning an annual income below the poverty line, according to the federal government's definition

When a firm doubles its inputs and finds that its output has more than doubled, this is known as: *A)* Constant returns to scale *B)* Diseconomies of scale *C)* A violation of the law of diminishing returns *D)* Economies of scale

When a negative externality exists, the private market produces *A)* Products at a high opportunity cost *B)* Less than the economically efficient output level *C)* Products at a low opportunity cost *D)* More than the economically efficient output level

When the demand for a good is inelastic, that good is likely to have: *A)* Many close complements. *B)* Many close substitutes. *C)* Few close complements. *D)* Few close substitutes

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using *A)* Global initiatives *B)* Market-based policies *C)* Strong-arm tactics *D)* Command-and-control policies

When the price of a good falls, marginal utility per dollar spent on that good __, prompting consumers to purchase __ of that good. *A)* Falls / less *B)* Falls / more *C)* Rises / less *D)* Rises / more

When the price of a good rises, marginal utility per dollar spent on that good __, leading consumers to purchase __ of that good. *A)* Rises / less *B)* Falls / more *C)* Rises / more *D)* Falls / less

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes: *A)* The rationing function of prices. *B)* The income effect. *C)* An inferior good. *D)* The substitution effect

Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that: *A)* Wants are limited and resources are unlimited, so trade-offs have to be made *B)* Wants are limited and resources are unlimited, so trade-offs are unnecessary *C)* Both wants and resources are unlimited, so trade-offs are unnecessary *D)* Wants are unlimited and resources are scarce, so trade-offs have to be made

Which expression is used to calculate the present value of an amount of money? *A)* (1 + interest rate)^time/Future Value *B)* Future Value x (1 + time)^interest rate *C)* Future Value x (1 + interest rate)^time *D)* Future Value/(1 + interest rate)^time

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified? *A)* Does the intervention program make the amount of economic surplus as large as possible? *B)* Does the intervention program reduce pollution to zero using the least costly method? *C)* Is the damage to the environment from government intervention as small as possible? *D)* Is the intervention program economically efficient?

Which of the following helps explain growing income inequality in the United States in recent years? *A)* Increased power of unions *B)* Reduced immigration *C)* The falling labor force participation rate of women *D)*Increased demand for highly skilled workers

Which of the following is NOT a characteristic of a perfectly competitive market? *A)* Sellers can easily buy and sell the productive resources needed to enter the market *B)* There are many sellers, each of which sells only a small fraction of the total quantity exchanged *C)* Buyers and sellers are well-informed *D)* Each firm in the market sells a somewhat different variant of the good

Which of the following is a transfer payment? *A)* A tax deduction *B)* A regressive tax *C)* An excise tax *D)* Social Security payments

Which of the following is an example of a common resource? *A)* Catfish in a private pond in Mississippi *B)* Public health care services in the United States *C)* Impounded dogs in a dog pound *D)* Sea otters in the coastal waters of the Pacific Ocean

Which of the following would not be studied in microeconomics? *A)* How an early freeze in California will affect the price of fruit *B)* How individual firms decide how much to produce *C)* Whether to study or watch TV tonight *D)* Whether the federal budget should be balanced

Who controls a sole proprietorship? *A)* The stockholders *B)* The employees *C)* The bondholders *D)* The owner

[GRAPH] Consider the accompanying figure representing the labor market below. In the absence of any government intervention, the equilibrium wage is __ per hour, and the equilibrium employment level is __ workers per hour. *A)* $12 / 600 *B)* $12 / 200 *C)* $4 / 200 *D)* $8 / 400

[GRAPH] Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. After the imposition of the minimum wage, employment will equal __ person-hours per day. *A)* 4,000 *B)* 8,000 *C)* 6,000 *D)* 2,000

[GRAPH] Refer to the above graph. Which of the following movements would indicate economic growth? *A)* From point B to point C *B)* From point A to point C *C)* From point A to point E *D)* From point C to point D

[GRAPH] Refer to the accompanying figure. A decrease in demand is represented by a shift from: *A)* Curve C to curve D *B)* Curve A to curve B *C)* Curve B to curve A *D)* Curve D to curve C

[GRAPH] Refer to the accompanying figure. An increase in supply is represented by a shift from: *A)* Curve B to curve A *B)* Curve C to curve D *C)* Curve C to curve B *D)* Curve A to curve B

[GRAPH] Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should: *A)* Produce 50 doughnuts *B)* Produce 90 doughnuts *C)* Shut down *D)* Produce 80 doughnuts

[GRAPH] Refer to the accompanying figure. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be: *A)* $4. *B)* Greater than $6 *C)* Less than $4 *D)* Greater than $4

[GRAPH] Refer to the accompanying figure. The marginal utility of the 7th pizza is: *A)* 5 *B)* 100 *C)* -100 *D)* -5

[GRAPH] Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is: *A)* 75 *B)* 15 *C)* 22.5 *D)* 90

[GRAPH] Refer to the accompanying table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out? *A)* 4 *B)* 6 *C)* 1 *D)* 3

[GRAPH] Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be: *A)* 210 *B)* 100 *C)* 180 *D)* 160

[GRAPH] Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by: *A)* This product becoming less fashionable *B)* An increase in consumer incomes *C)* An increase in the wages paid to workers producing this good *D)* The development of more efficient machinery for producing this commodity

[GRAPH] Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: *A)* There has been an increase in the quantity supplied *B)* Supply has increased and price has risen to 0G *C)* Supply has increased and equilibrium quantity has decreased *D)* Supply has decreased and equilibrium quantity has decreased

[GRAPH] Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing level of output for this monopolist is __ units per day. *A)* H *B)* I *C)* G *D)* F

[GRAPH] Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The socially optimal level of output is __ units per day. *A)* G *B)* F *C)* I *D)* H

[GRAPH] The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 25 pizzas a day, its average fixed cost is __. *A)* $5 *B)* $10 *C)* $6 *D)* $20

[GRAPH] The following graph is the production possibilities curve of a nation. Refer to the above graph. The marginal opportunity cost of the fourth unit of bread is: *A)* 3 units of drill presses *B)* 0 unit of drill presses *C)* 1 unit of drill presses *D)* 4 units of drill presses

[GRAPH] Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles? *A)* A only *B)* B only *C)* C only *D)* D only

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