micro final

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An economy is efficient when: output is distributed equitably. the problem of scarcity is eliminated. all opportunities to make some people worse off without making other people better off have been taken. all opportunities to make some people better off without making other people worse off have been taken.

all opportunities to make some people better off without making other people worse off have been taken.

Which of the following would shift the demand curve for new textbooks to the right?

an increase in college enrollments

An effective price ceiling will most likely result in:

an increase in consumer surplus

The production possibility frontier will shift outward for all of the following reasons except:

an increase in the unemployment rate.

If there is a tremendous natural disaster, the effect can be shown by:

an inward contraction of the production possibility frontier.

unbanked

are adults who do not have their own bank accounts. Along with the underbanked, they may rely on alternative financial services for their financial needs, where these are available.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The basic difference between the short run and the long run is that

at least one resource is fixed in the short run, while all resources are variable in the long run.

Given that the China's economy is significant in the world market, when Chinese income increases, what happens to the equilibrium price and quantity of crude oil in the world market?

both price and quantity increase

Normal profit is

the return to the entrepreneur when economic profits are zero.

constant returns to scale

the situation in which a firm's long-run average costs remain unchanged as it increases output

The total surplus generated in a market is:

the sum of consumer surplus and producer surplus.

The total producer surplus in the Wisconsin milk market represents:

the sum of the individual producer surpluses in this market.

In economics a "marginal" values refers to:

the value associated with one more unity of an activity

Opportunity cost is:

the value of the best alternative forgone in making any choice.

You are considering whether to drive your car or fly 1,000 miles to Florida for spring break. In making your decision you should consider

the variable cost of the trip, the opportunity cost of time, and the need for transportation in Florida

Macroeconomics deals with: bits and pieces of the economy. how a business unit should operate profitably. how individuals make decisions. the working of the entire economy or large sectors of it.

the working of the entire economy or large sectors of it.

A normal profit is considered a cost because

this is the amount required to ensure continued supply of the product

The basic concern of economics is:

to study the choices people make.

average total cost

total cost divided by the quantity of output produced

total product

total output produced by the firm

The explicit costs of going to college include

tuition costs and the cost of books, whereas the implicit costs include foregone income.

If the market for grapefruit is in equilibrium without any government intervention:

consumer and producer surplus are maximized.

After swimming 100 laps at the pool, Erik decides to swim 10 more before lifting weights. This statement best represents this economic concept: The real cost of something is what you must give up to get it. There are gains from trade. Resources are scarce. "How much" is a decision at the margin.

"How much" is a decision at the margin.

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept: The real cost of something is what you must give up to get it. There are gains from trade. Resources are scarce. "How much" is a decision at the margin.

"How much" is a decision at the margin.

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is: $1. the enjoyment you would have received from the candy bar. $1 plus the enjoyment you would have received from the candy bar. $2 minus the enjoyment you received from the bag of chips.

$1 plus the enjoyment you would have received from the candy bar.

Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to:

$20, $70

Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Linda's accounting profit is _____________ while her economic profit is ______________.

$300; negative $100

The price elasticity of demand is usually equal to the slope of the demand curve. a. True b. False

B (equal to the change in quantity divided by the percentage change in price)

Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are an example of this economic principle: Resources are scarce. -People usually take advantage of opportunities to make themselves better off. There are gains from trade. The real cost of something is what you must give up to get it.

-People usually take advantage of opportunities to make themselves better off.

An economy that has the lowest opportunity cost for producing a particular good is said to have: - an absolute advantage. - a comparative advantage. - a production possibility frontier. - an increasing opportunity cost

- a comparative advantage.

A simplified representation that is used to study a real situation is called: - a model. - a production possibility frontier. - an assumption. - a trade-off

- a model.

Trade takes the form of ________ when people directly exchange goods that they have for goods they want. - exploitation - benevolence - barter - the zero-sum game

- barter

The process observed when an economy's production possibility frontier is shifted outward is: - comparative advantage. - economic growth. - full employment. - specialization.

- economic growth.

All points on the production possibility frontier are: - efficient production points. - inefficient production points. - infeasible production points. - economic growth

- efficient production points.

The models used in economics: - are usually limited to variables that are directly related. - are essentially not reliable because they are not testable in the real world. - are of necessity unrealistic and not related to the real world. - emphasize basic relationships by abstracting from complexities in the everyday world.

- emphasize basic relationships by abstracting from complexities in the everyday world.

Economists are generally in support of: - government restrictions on trade. - free international trade. - tariffs to restrict trade. - subsidizing exports.

- free international trade

All points outside the production possibility frontier are: - efficient production points. - inefficient production points. - infeasible production points. - economic growth.

- infeasible production points.

The opportunity cost of production: - is the price of a good. - is what you give up to produce the good. - decreases as production increases. - is what you gain by producing the good.

- is what you give up to produce the good.

Trade can be beneficial to an economy because: - it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others. - more goods and services can be obtained at lower opportunity cost. - it prevents specialization in those activities in which countries have a comparative advantage. - it prevents unemployment.

- more goods and services can be obtained at lower opportunity cost

The concept of comparative advantage is based upon: - absolute labor productivity. - relative labor costs. - dollar prices of labor. - relative opportunity costs.

- relative opportunity costs.

A production possibility frontier illustrates the ________ facing an economy that ________ only two goods. - prices; sells - trade-offs; produces - trade-offs; consumes - shortages; produces

- trade-offs; produces

Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is: -$10,000. -whatever she would have purchased with the $10,000 plus whatever she would have earned had she not been in college. -whatever she would have earned had she not been in college. whatever she would have purchased with the $10,000 instead.

-whatever she would have purchased with the $10,000 plus whatever she would have earned had she not been in college.

Excess capacity arises when firms cannot sell all of their output at the current market price. a. True b. False

B (excess capacity is when production is not at an optimal level for a firm)

A major difference between monopolistic competition and perfect competition is the degree of product differentiation. Pure competition has none and differentiation always exists in monopolistic competition. a. True b. False

A price elasticity of demand of 2 for a specific cola means that if the price increases 1 percent, the quantity demanded of the cola will decrease by 2 percent. a. True b. False

A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. Which of the following statements is correct? a. The slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand. b. The price elasticity of demand is -1/5; there is insufficient information to determine the slope of the demand curve. c. Both the slope of the demand curve and the price elasticity of demand are equal to -1/5. d. There is insufficient information to determine either the slope of the demand curve or the price elasticity of demand. e. The slope of the demand curve is -1/5; the price elasticity of demand is 5.

A cartel is a(n) a. form of explicit collusion in which the parties collectively behave like a monopoly b. market that changes very little as firms enter and exit c. implicit pricing scheme that does not involve explicit communication between the parties d. form of nonprice competition e. group of firms engaged in price discrimination

A firm's minimum efficient scale is defined as a. the output level at which LRATC first reaches its minimum level b. any output level at which LRATC is minimized c. the highest output level at which LRATC takes on its minimum value d. the output level at which the firm charges its highest price e. the lowest output level at which the firm can charge a positive price

A firm's total cost of production is a. the owners' opportunity cost b. labor costs plus the cost of materials c. the payments for its inputs d. depreciation plus payments for inputs e. taxes plus depreciation plus payments for inputs

An inferior good is a. any good whose demand curve shifts to the left as income rises b. any good of low quality c. one that has few substitutes d. any good produced by inexpensive labor e. any good that consumers buy less of as its price falls

An oligopolist cannot use the MR = MC rule to find its equilibrium output level because a. oligopolists do not face stable demand curves for their output b. oligopolists do not try to maximize profits in the long run c. it is too difficult to estimate marginal cost d. the rule applies only in perfect competition e. the minimum efficient scale exceeds total quantity demanded

An oligopolistic firm that is part of a collusive agreement is less likely to cheat a. the more punishment it expects if the cheating is detected b. the lower is the possibility of detection c. the less likely is the collapse of the entire agreement as a result of cheating d. the greater is the additional profit from charging a lower price than the other firms e. the higher is the chance of taking customers away from competitors by charging a lower price

Another term that could be used for elasticity is a. sensitivity b. utility c. surplus d. profit e. slope

Butter and margarine are examples of a. substitutes b. complements c. externalities d. inferior goods e. goods that are independent of each other

By keeping new firms from entering the market, oligopolies are more likely to have a. long-run economic profit b. low prices c. great efficiency d. decreasing marginal costs e. economies of scale

Cartels are more likely to succeed when high fixed costs of production restrict the number of firms in an industry. a. True b. False

Cecilia's Cafe is a monopolistic competitor. If Cecilia's is currently producing at the output level at which her average total cost is minimized and the cafe is earning an economic profit, then, in the long run, output will a. decline and average total cost will increase b. decline and average total cost will decrease c. remain unchanged as Cecilia's strives to minimize costs d. increase and average total cost will be greater e. increase and average total cost will be smaller

Celia buys 24 gallons of gasoline per month when the price is $2 per gallon, but only 16 gallons if the price rises to $3 per gallon. Within this range, her demand for gasoline is a. unitary elastic b. perfectly inelastic c. perfectly elastic d. inelastic e. elastic

Compared to the market demand curve, a demand curve facing a monopolistically competitive firm would be a. more elastic. b. vertical. c. horizontal. d. the same as the market demand curve. e. less elastic.

Consider a firm that needs one day to hire more labor, one week to increase its purchases of raw materials, and three months to change the amount of its capital. This firm's long run is a. three months b. one week c. one day d. three months plus eight days e. three months plus one week

Demand for goods in broader category definitions, such as "beverages", is usually less elastic than demand for more narrowly defined goods, such as "diet colas." a. True b. False

Diseconomies of scale tend to occur in large firms because a. the many layers of management are cumbersome and because it is difficult to monitor employees b. such firms are operating at inappropriate plant sizes for their output levels c. such firms are operating at a point above their long-run average total cost curves d. their ability to adjust their plant sizes is constrained by the existence of fixed inputs e. they fail to garner all the possible gains from specialization

Firms in a monopolistically competitive market follow the same MR = MC profit maximization rule used by firms in other market structures. a. True b. False

For a normal good, quantity demanded a. increases as income rises, so the income elasticity of demand is positive b. increases as income rises, so the income elasticity of demand is negative c. falls as income rises, so the income elasticity of demand is positive d. falls as income rises, so the income elasticity of demand is negative e. remains unchanged as income rises, so the income elasticity of demand is zero

For which of the following items is demand likely to be the most price elastic? a. Tide liquid laundry detergent b. laundry detergent in general c. powdered laundry detergent d. liquid laundry detergent

Globalization of markets can reduce oligopoly power by a. increasing the number of competitors b. increasing market prices c. bypassing antitrust legislation in a particular country d. identifying new markets for goods and services e. reducing the economies of scale

If a 20 percent decrease in the price of chicken results in a 10 percent increase in the quantity demanded, the price elasticity of demand has a value of a. 0.5 b. 2 c. 1 d. 0.1 e. none of these

If a firm increases its output level in the short run, then a. variable cost rises but fixed cost remains unchanged b. both variable cost and fixed cost rise c. variable cost rises, but fixed cost fall d. both variable cost and fixed cost fall e. variable cost remains unchanged, but fixed cost rises

If a firm is experiencing constant returns to scale a. long-run average total cost neither rises nor falls as production increases b. average fixed cost is zero c. the increase in average variable cost is exactly offset by a decrease in average fixed cost d. the decrease in average variable cost is exactly offset by an increase in average fixed cost e. long-run average total cost is zero.

If a firm launches a successful advertising campaign, then its a. ATC curve shifts upward with a smaller rise at larger output levels b. ATC curve shifts upward with a smaller rise at smaller output levels c. demand curve shifts to the left and becomes flatter d. demand curve shifts to the right and becomes flatter e. demand curve shifts to the left and becomes steeper

If a market is dominated by a few large, interacting firms, it is said to be a(n) a. oligopoly b. monopoly c. integrated monopoly d. monopolistically competitive market e. perfectly competitive market

Oligopolistic firms are the only ones that consider their rivals' actions when making decisions about output and price. a. True b. False

If demand is elastic, then a. the percentage change in quantity demanded is larger in absolute value than the percentage change in price b. supply is inelastic c. prices can neither rise nor fall d. the percentage change in quantity demanded is smaller in absolute value than the percentage change in price e. supply is elastic

If demand is perfectly elastic, then a. the demand curve is a horizontal line b. supply is perfectly inelastic c. supply is perfectly elastic d. the demand curve is a vertical line e. the demand curve is downward sloping

If demand is perfectly inelastic, a. the percent change in quantity demanded divided by the percent change in price is zero b. the demand curve is a vertical line c. supply is perfectly inelastic too d. consumers have power over prices e. the percentage change in price divided by the percentage change in quantity demanded is zero

If demand is perfectly inelastic, a decrease in price results in a(n) a. decrease in seller's total revenue b. increase in total seller's expenditure c. increase in expenditure on the good, but a decrease in revenue to the seller d. unfavorable shift in tastes and preferences e. increase in total revenue to the seller

If the cross-price elasticity of demand between two goods is negative, then a. the two goods are complements b. the two goods are substitutes c. as price of one good rises, the quantity demanded of the other good also rises d. one of the goods must be inferior e. the two goods are rarely used together by consumers

If the demand curve is a horizontal line, a. demand is perfectly elastic b. demand is perfectly inelastic c. demand is unitary elastic d. demand is relatively inelastic e. total expenditure is maximized

If the demand curve is a straight line with a negative slope, then demand is more elastic at higher prices than lower prices. a. True b. False

If the demand for good A is more elastic than the demand for good B, a small increase in supply in both markets will cause a. a much greater increase in the equilibrium quantity of good A than for good B b. a much greater increase in the equilibrium quantity of good B than for good A c. the equilibrium quantity will decrease by the same amount in both markets d. only the equilibrium quantity of good B will decrease e. only the equilibrium quantity of good A will decrease

If the elasticity of demand is much greater than the elasticity of supply, an excise tax levied on the suppliers will a. cause the suppliers to incur a greater burden of the tax than demanders b. cause the demanders to incur a greater burden of the tax than suppliers c. the burden of the tax will be shared equally between the suppliers and the demanders d. cause the entire burden of the tax to rest on the demanders e. Without more information as to the amount of the excise tax, who will incur a greater burden will be unclear

If the elasticity of supply is much greater than the elasticity of demand, a subsidy awarded to demanders will a. benefit the demanders more than the suppliers b. benefit the suppliers more than the demanders c. the benefit of the subsidy will be equally shared between the demanders and the suppliers d. allow the demanders to be the only ones who will benefit e. Without more information as to the amount of the subsidy, who will benefit more can not be determined

If the income elasticity of demand is negative, this means that the good is a. an inferior good b. sold at a lower than equilibrium price c. provided by a monopoly producer d. provided by competitive producers e. a normal good

If the numerical value of the price elasticity of demand is 3, then a one-percent change in price will cause a(n) a. larger percentage change in quantity demanded, so demand is elastic b. larger percentage change in quantity demanded, so demand is inelastic c. smaller percentage change in quantity demanded, so demand is elastic d. smaller percentage change in quantity demanded, so demand is inelastic e. equal percentage change in quantity demand, so demand is unitary elastic

If the percentage change in quantity demanded is smaller (in absolute value) than the percentage change in price, then demand is a. inelastic b. elastic c. unit elastic d. determined by supply e. inadequate compared to supply

If the price elasticity of demand for Cheer detergent is 3.0, then a a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded c. $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded d. $1,000 drop in price leads to a 333-unit rise in the quantity demanded e. 12 percent rise in price leads to a 36 percent rise in the quantity demanded

If the quantity of higher education demanded rises by 5 percent when incomes rise by 10 percent, a. higher education is a normal good b. higher education is an inferior good c. the demand for higher education is price elastic d. the law of demand applies to higher education e. the demand for higher education is price inelastic

In the long run when monopolistically competitive firms advertise, a. they will still earn zero economic profit b. they can earn positive economic profit by increasing market share c. the market price must fall d. the market price must rise e. there will be fewer units sold than in the short run

In the short run, a. at least one of the firm's inputs is fixed b. customer tastes and preferences are fixed c. the firm may vary all inputs d. sunk costs are variable e. government intervention is inevitable

In the short run, costs that arise from resources that cannot vary in quantity are known as _____, whereas costs from inputs that can vary in quantity are known as _____. a. fixed costs; variable costs b. explicit costs; implicit costs c. opportunity costs; variable costs d. fixed costs; opportunity costs e. variable costs; fixed costs

Marginal cost is a. the increase in total cost from producing one more unit of output b. total variable cost per unit of output c. fixed cost per marginal unit d. average total cost divided by the quantity of inputs used e. total cost per unit of output

Marginal product is the change in output divided by the change in the amount of an input used. a. True b. False

One barrier to entry that may maintain an oligopoly is a. government policy designed to limit foreign competition b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages that make it impossible for new entrants to compete profitably e. executive payoffs

Perfect planting and harvesting weather results in a record high crop of wheat. If wheat growers experience an increase in total sales revenue, then the demand for wheat must be a. price-inelastic b. unitary elastic c. perfectly inelastic d. price-elastic e. perfectly elastic

Regardless of whether advertising is effective or not, it results in an increase in both fixed and total costs. a. True b. False

Samantha has been working for a law firm and earning an annual salary of $90,000. She decides to open her own practice. 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. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $1,000. Assuming that there are no additional expenses, Samantha's annual explicit costs will equal a. $55,200 b. $221,400 c. $91,000 d. $146,200 e. $145,200

Suppose that (1) LRATC is minimized at $60 when 30,000 units are being produced, (2) the quantity demanded at a price of $60 is 150,000 units, and (3) there are currently 10 firms producing in the market. Then, a. we should expect competition to result in a decrease in the number of firms b. we should expect a natural monopoly to emerge c. we should expect some existing firms to divide up into smaller firms. d. the LRATC curve will shift upward in the long run e. the LRATC curve will shift downward in the long run.

Technological changes that decrease minimum efficient scale a. reduce concentration b. increase concentration c. increase product diversification d. increase the value of existing assets e. decrease the exchange rate

The "short run" may vary in length from industry to industry. a. True b. False

The cross-price elasticity of demand between Texaco gasoline and Mobil gasoline sold at the same intersection would be a. positive b. negative c. 0 d. 1.0 e. -1.0

The cross-price elasticity of demand between butter and margarine is most likely a. positive, since the goods are substitutes b. positive, since the goods are complements c. negative, since the goods are complements d. negative, since the goods are substitutes e. zero, since the goods are both normal

The cross-price elasticity of demand is useful for determining which pairs of commodities serve as substitutes for each other. a. True b. False

The law of diminishing marginal returns says that as more of a variable input is combined with a fixed input, total output will increase; however, the increases in the firm's output will become ever smaller. a. True b. False

The marginal cost curve crosses a. both the average total cost and average variable cost curves at their respective minimum points b. the average total cost curve at its minimum point, and the average variable cost curve at its maximum point c. the average total cost curve and the average variable cost curves at the same output level d. both the average total cost and average variable cost curves at their respective maximum points e. the average total cost curve at its maximum point, and the average variable cost curve at its minimum point

The marginal product of labor is the a. additional output produced when one more worker is hired b. amount of output associated with labor inputs c. maximum amount of output produced by a given set of inputs d. maximum profit "produced" by selling a firm's output e. additional cost associated with an additional unit of labor

The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is also to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a a. dominant strategy b. collusive strategy c. tit-for-tat strategy d. repeated-trial strategy e. tacit strategy

The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. a. True b. False

The supply of a good is more price elastic a. the more alternatives there are to producing the good in question b. the more broadly the market for the good is defined. c. the shorter the time horizon over which it is measured. d. the higher the cost of production. e. the more elastic the demand for that good.

The typical monopolistically competitive firm earns no economic profit in the long run, regardless of whether or not it advertises. a. True b. False

Total cost is a. fixed cost plus variable cost b. irrelevant to decision making c. marginal cost plus fixed cost d. total product minus total input e. the additional cost associated with producing an additional unit

Variable inputs are those whose a. quantity changes as the level of output changes b. costs are irreversible c. quantity remains constant regardless of the level of output d. costs are considered sunk costs e. price is continuously changing

When long-run average total cost increases as output increases, a firm experiences a. diseconomies of scale b. economies of scale c. constant returns to scale d. decreasing marginal cost e. greater total cost in the long run than in the short run

When the marginal product of labor increases as the amount of labor employed increases, a. the additional worker has made other workers more productive b. the firm also must have increased the amount of capital c. the firm is experiencing economies of scale d. there has been an improvement in the available technology e. the law of diminishing returns has been violated

Whenever marginal cost is below average cost, average cost must fall as output increases. a. True b. False

The spreading of fixed costs over more output explains why the long-run average cost falls as output rises. a. True b. False

B (???)

Which of the following is true about the relationships among various cost curves? a. When MC exceeds ATC, ATC must be rising. b. When MC exceeds ATC, ATC could be rising or falling. c. When ATC is falling, MC must exceed ATC. d. When TC is rising, MC must exceed TC. e. TC falls when AFC falls.

Which of the following might be an effect of advertising? a. all of the following b. increased product differentiation c. increased total costs of production d. increased average total costs of production e. increased demand for the product

Which of the following would be an excellent example of a lumpy input a. pancake griddles b. water c. labor d. corn e. pancake batter

With an income elasticity of demand of 0.5, cigarettes are an example of a. a normal good b. an inferior good c. irrational demand d. complements to health care e. unitary elasticity

In the market for tacos, all of the following reduces the supply curve (shift to the left) except:

A decrease in the price of tacos

Questions #26 - #32 refer to the information below: Moldavia is a small country that initially does not participate in world trade. The market for pears in Moldavia is characterized by the following supply and demand curves: QD = 12 - P P: $/lb. of pears QS = 2P Q: lbs. of pears The equilibrium price of pears in Moldavia is ; the equilibrium quantity of pears in Moldavia is . A. $4/lb.; 8 lbs. B. $2/lb.; 10 lbs. C. $6/lb.; 6 lbs. D. $3/lb.; 6 lbs.

A. $4/lb.; 8 lbs.

The Moldavian government decides to both repeal the tax and open the domestic pear market up to world trade. This combination of policy changes results in the same domestic consumer surplus as with the per lb. tax above. As a result of this combination of policy changes, the equilibrium price of pears in Moldavia is . A. $6/lb. B. $4/lb. C. $3/lb. D. None of the above.

A. $6/lb.

Questions #33 - #35 are based on the following information: Wesley & Wanda are taxed on their incomes according to the table below: Income Tax Rate $0 - $20,000 10% $20,001 and above 20% If Wesley's income is $15,000, his marginal tax rate is , and his average tax rate is . A. 10%; 10% B. 10%; 20% C. 20%; 10% D. Not enough information is given.

A. 10%; 10%

If the consumption of a good yields a positive externality, then the social benefit curve lies the demand curve, and the socially optimal quantity is than the equilibrium quantity. A. Above; greater B. Above; less C. Below; greater D. Below; less

A. Above; greater

Betty and Veronica can both wash a car in twenty minutes. Betty can mow a lawn in twenty minutes, but it takes Veronica thirty minutes to mow a lawn. According to our theories of trade, A. Betty has both absolute and comparative advantage in lawns. B. Betty has absolute advantage in lawns, but Veronica has comparative advantage in lawns. C. Veronica has both absolute and comparative advantage in lawns. D. Betty has absolute advantage in both cars and lawns.

A. Betty has both absolute and comparative advantage in lawns.

Which of the following is NOT a positive economic statement? A. Congress should use tariffs to protect infant industries in the U.S. from import competition. B. Rent control laws reduce the quantity of housing. C. Increases in the rate of growth of the money supply will increase inflation. D. Increases in the minimum wage will increase the rate of unemployment among teenage workers.

A. Congress should use tariffs to protect infant industries in the U.S. from import competition.

The price elasticity of demand for a linear demand curve follows which pattern, moving from high prices to low prices? A. Elastic; unit elastic; inelastic B. Unit elastic; inelastic; elastic C. Inelastic; unit elastic; elastic D. Elastic; inelastic; unit elastic

A. Elastic; unit elastic; inelastic

This tax system is , because Wanda's average tax rate is than Wesley's. A. Progressive; higher B. Regressive; higher C. Progressive; lower D. Regressive; lower

A. Progressive; higher

Why are there always opportunity costs when we shift from making one product to another? A. Some resources are better suited for use in making the first product. B. There is always more demand for the first product than the second product. C. Consumers must be convinced to buy the second product. D. The quantity and quality of available resources constantly change.

A. Some resources are better suited for use in making the first product.

"We find that the U.S. can increase tax revenues by 30% by raising labor taxes but only 6% by raising capital income taxes, while the same numbers for the EU-14 (European Union economies) are 8% and 1% respectively." Economists Matthias Trabandt & Harald Uhlig One can conclude from the research of these economists that: A. The U.S. is on the left side of its Laffer Curve for both labor taxes and capital income taxes. B. The EU-14 economies are on the left side of their combined Laffer Curve for labor taxes but not for capital income taxes. C. The U.S. is on the left side of its Laffer Curve for labor taxes but not for capital income taxes. D. Neither the U.S. nor the EU-14 is on the left side of its respective Laffer Curve for either labor taxes or for capital income taxes.

A. The U.S. is on the left side of its Laffer Curve for both labor taxes and capital income taxes.

An inferior good is defined by an income elasticity less than 1. a. True b. False

B (a negative income elasticity)

How are trade-offs and opportunity costs different? A. The opportunity cost is the most desirable trade-off. B. A trade-off is the most expensive opportunity cost. C. A trade-off can be put on a decision-making grid, but an opportunity cost cannot. D. It's more important to be aware of the trade-off when deciding something.

A. The opportunity cost is the most desirable trade-off.

A production possibilities curve is a graph that shows A. alternative ways to use an economy's resources. B. a company's projected product sales. C. how a country will budge its resources. D. how a company will pay its expenses.

A. alternative ways to use an economy's resources.

Why are scarcity and choice basic to the study of economics? A. because there is not an endless supply of all resources B. because there is an endless supply of all resources C. because most people have limited wants and needs D. because they are important factors of production

A. because there is not an endless supply of all resources

Physical objects such as clothes or shoes are defined as A. goods. B. needs. C. wants. D. services.

A. goods

Something such as air, food, or shelter that is necessary for survival is a A. need. B. want. C. good. D. service.

A. need

An example of an opportunity cost would be A. not being able to afford a family trip because the family buys a computer. B. buying a movie ticket. C. the price of gasoline for a family trip. D. buying a computer to help get better grades in school.

A. not being able to afford a family trip because the family buys a computer.

The production possibilities frontier is A. the line on a production possibilities graph that shows the maximum possible output. B. the points on a production possibilities graph that show an underutilization of resources. C. the points on a production possibilities graph that show the total revenue of an economy. D. the line on a production possibilities graph that shows how production increases as new technologies are introduced.

A. the line on a production possibilities graph that shows the maximum possible output.

An opportunity cost is A. the most desirable alternative given up as the result of a decision. B. any good or service we barter for another good or service. C. the cost in dollars and time of any decision. D. a choice between two equally desirable goods or services.

A. the most desirable alternative given up as the result of a decision.

A small country opens its domestic wheat market to free international trade and, as a result, the equilibrium price of wheat drops but the equilibrium quantity of wheat consumed stays the same as it was in autarky (the no trade case). Which of the following explains these observations? A.The country imports wheat, and domestic demand for wheat is perfectly inelastic. B. The country exports wheat, and domestic demand for wheat is perfectly inelastic. C. The country imports wheat, and domestic demand for wheat is unit elastic. D. The country exports wheat, and domestic demand for wheat is unit elastic.

A.The country imports wheat, and domestic demand for wheat is perfectly inelastic.

economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only

Accounting profit differs from economic profit because:

Which of the following best describes the law of demand?

As the price of a DVD rental rises, fewer DVDs are rented.

A Nash equilibrium a. occurs when quantity demanded equals quantity supplied b. exists when each player in a game is taking its best action -- given the actions taken by the other players c. exists when each player in a game picks the collectively optimal strategy d. is a kind of equilibrium that exists only in an oligopoly e. is a kind of equilibrium that exists only in a duopoly

A corporation has been steadily losing money on one of its product lines. The factory used to produce that brand cost $20 million to build. The firm now is considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not is correct? a. The firm should turn down the purchase offer because the factory cost more than $15 million to build. b. The $20 million spent on the factory is a sunk cost that should not affect the decision. c. The $20 million spent on the factory is an implicit cost that should be included in the decision. d. The firm should sell the factory only if it can reduce its costs elsewhere by $5 million. e. The firm's opportunity cost would be $35 million if it decides to sell the factory.

A firm in a monopolistically competitive market is similar to a monopolist in the sense that it a. must overcome significant barriers to entry b. faces a downward-sloping demand curve c. produces a large share of the market output d. is dependent on the actions of other firms e. produces the same product as its competitors do

A firm's total cost of production is the a. employees' opportunity cost b. owners' opportunity cost c. owners' opportunity cost minus the employees' opportunity cost d. owners' opportunity cost plus the employees' opportunity cost e. employees' opportunity cost minus the owners' opportunity cost

A more elastic demand for a good would generally result from a. an increase in the supply of that good b. an increase in the number of substitutes for that good c. a decrease in the number of substitutes for that good d. smaller consumer incomes e. a reduction in the number of consumers

A natural oligopoly occurs when a. few firms can afford to compete in the industry b. the minimum efficient scale is a large fraction of the market c. there are a large number of buyers and sellers of a standardized product d. minimum efficient scale is greater than total market demand at the price equal to minimum long run average total cost e. competitive pricing drives firms from the market

A sunk cost is one that a. changes as the level of output changes in the short run b. was paid in the past and will not change regardless of later decisions c. should determine the rational course of action in the future d. has the most impact on profit-maximizing decisions e. influences rational decision makers

All of the following, except one, are characteristics of monopolistic competition. Which is the exception? a. There is a large number of sellers. b. Each seller faces a horizontal demand curve for its product. c. There are no significant barriers to entry or exit. d. Sellers produce differentiated products. e. There is a large number of buyers.

All of the following, except one, would serve to increase competition in an oligopoly. Which is the exception? a. increased imports from foreign firms b. an increase in the minimum efficient scale c. an increase in the size of the market d. new technologies that reduce barriers to entry e. action by the U.S. Justice Department to break up large firms

As a result of heavy spring rains in the Midwest, the corn crop declined sharply. If corn growers experienced an increase in sales revenue, the demand for corn must be a. price elastic b. price inelastic c. unitary elastic d. perfectly inelastic e. perfectly elastic

At a firm's current output level of 200 units per week, it has 10 employees at a weekly wage of $500 each. Raw materials, which are ordered and delivered daily, cost $1,000 per week. The weekly cost of the firm's capital is $1,250. Which of the following statements is correct? a. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250. b. Total variable cost is $6,000; total fixed cost is $1,250; total cost is $7,250. c. Total variable cost is $1,250; total fixed cost is $6,000; total cost is $7,250. d. Total variable cost is $2,250; total fixed cost is $500; total cost is $2,750. e. Total variable cost is $1,500; total fixed cost is $1,250; total cost is $2,750.

At the long-run equilibrium output level, a monopolistically competitive firm's average total cost curve a. lies below the demand curve b. is tangent to (just touches but does not cross) the demand curve c. crosses the demand curve from below d. crosses the demand curve from above e. is at its minimum point

Average Fixed Cost is the a. horizontal distance (at any particular cost level) between ATC and AVC b. vertical distance (at any particular quantity) between ATC and AVC c. vertical distance (at any particular quantity) between ATC and the horizontal axis d. vertical distance (at any particular quantity) between AVC and the horizontal axis e. horizontal distance (at any particular cost level) between ATC and the vertical axis

Average variable cost is a. total cost minus fixed cost b. total variable cost divided by the quantity of output c. total cost plus marginal cost d. total cost per unit of output e. output divided by the quantity of inputs used

Camille's Chicken operates in a monopolistically competitive market. If Camille implements a new free delivery service for customers, a. this is an example of advertising b. this is a form of nonprice competition c. total revenue will increase d. total cost will decrease e. her firm will be acting as if it were perfectly competitive market

Collusive arrangements tend to collapse when a. there is a small number of sellers b. the benefits of cheating are great and the costs are low c. inflation is high d. interest rates are low e. there is a powerful price leader

Demand is said to be price inelastic when the coefficient of price elasticity of demand is a. greater than +1 b. between 0 and +1 c. zero d. infinity

Each of the following, except one, is a limitation on collusive behavior. Which is the exception? a. the market demand curve b. a tit-for-tat strategy c. the threat of prosecution d. incentives for firms to lower prices e. incentives for firms to raise output

Firms use advertising to a. standardize their products b. differentiate their products c. decrease market prices d. reduce total cost e. avoid antitrust penalties

For which of the following goods is the income elasticity of demand likely to be largest? a. poultry products b. meals at restaurants c. lemonade d. used books e. paperback mystery novels

For which of the following types of goods would demand be most price-elastic? a. necessities b. goods with many substitutes c. goods that require only a small portion of the buyer's budget d. goods with vertical demand curves e. goods with vertical supply curves

Generally, as goods are more broadly defined, a. demand becomes more price elastic b. demand becomes less price elastic c. total expenditure falls as the price decreases d. the demand curve becomes straighter e. more substitute goods can be identified

If Babette's Bicycle shop can rebuild three bicycles for $200 and four bicycles for $240, then the average variable cost of four bicycles a. equals $40 b. cannot be determined without more information c. equals $60 d. equals $240 e. equals $10

Antitrust policies usually focus on encouraging cost-efficient mergers between firms in the same industry. a. True b. False

B (discourage mergers so monopolies do not form)

If Papagna's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.00 and that the average total cost of making 499 pizzas is $3.30, then a. average costs are rising at Q = 500 b. average costs are falling at Q = 500 c. total costs are falling at Q = 500 d. average variable costs must be falling e. average variable costs must be rising

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would a. slope downward b. be horizontal c. slope upward d. slope downward for low output levels and upward for high output levels e. slope upward for low output levels and downward for high output levels

If a firm is experiencing diminishing marginal returns to labor, then a. total output must be decreasing b. total output rises more slowly as additional workers are added c. the firm must decrease the amount of labor it hires d. total output per worker must be rising e. the firm must be operating in the long run

If a monopolistically competitive firm raises its price, a. quantity demanded falls to zero b. quantity demanded declines, but not to zero c. the market supply curve shifts outward d. the market supply curve shifts inward e. quantity demanded remains constant

If all firms in a market have the same LRATC curve, a. only one of them can survive in the long run b. the lowest possible long-run price is determined by LRATC at minimum efficient scale c. the highest possible long-run price is determined by LRATC at minimum efficient scale d. minimum efficient scale must be zero e. there is no minimum efficient scale

If demand is unitary elastic, a price decrease results in a. an increase in total seller's total revenue b. no change in total seller's total revenue c. a decrease in total expenditure on the good d. a decrease in quantity demanded of the good e. an increase in supply of the good

If one were to rank the demand curve facing a firm from the least elastic to the most elastic, the ranking would be a. monopoly, perfectly competitive, monopolistically competitive b. monopoly, monopolistically competitive, perfectly competitive c. perfectly competitive, monopoly, monopolistically competitive d. monopolistically competitive, monopoly, perfectly competitive e. perfectly competitive, monopolisitcally competitive, monopoly

If the cross-price elasticity of demand between two goods is -2.2, then the a. two goods are substitutes b. two goods are complements c. income elasticity of demand must be between 0 and 1.0 d. goods are both normal goods e. goods are both inferior goods

If the cross-price elasticity of demand is positive, then the a. two goods are complements b. two goods are substitutes c. two goods have no relationship to each other d. price is below the equilibrium e. price is above the equilibrium

If the demand curve is a straight line and has the normal negative slope, then as quantity demanded increases, demand a. becomes more elastic b. becomes more inelastic c. is unitary elastic d. rises and then falls e. is an inverse function of supply

If the demand curve is a vertical line, then a. demand is perfectly elastic b. demand is perfectly inelastic c. demand is unit elastic d. demand is determined by supply e. supply is a horizontal line

If the demand for good A is more elastic than the demand for good B, a small decrease in supply in both markets will cause a. a much greater increase in price for good A than for good B b. a much greater increase in price for good B than for good A c. the price will icrease by the same amount in both markets d. only the price of good B will increase e. only the price of good A will increase

If the demand for good A is more elastic than the demand for good B, a small increase in supply in both markets will cause a. a much greater decrease in price for good A than for good B b. a much greater decrease in price for good B than for good A c. the price will decrease by the same amount in both markets d. only the price of good B will decrease e. only the price of good A will decrease

If the elasticity of demand is much greater than the elasticity of supply, a subsidy awarded to demanders will a. benefit the demanders more than the suppliers b. benefit the suppliers more than the demanders c. the benefit of the subsidy will be equally shared between the demanders and the suppliers d. allow the demanders to be the only ones who will benefit e. Without more information as to the amount of the subsidy, who will benefit more can not be determined

If the elasticity of supply is much greater than the elasticity of demand, an excise tax levied on the suppliers will a. cause the suppliers to incur a greater burden of the tax than demanders b. cause the demanders to incur a greater burden of the tax than suppliers c. the burden of the tax will be shared equally between the suppliers and the demanders d. cause the entire burden of the tax to rest on the demanders e. Without more information as to the amount of the excise tax, who will incur a greater burden will be unclear

If the income elasticity of demand for a good is 0.5, then a. it is a normal good, and its demand curve will shift to the left if buyers' incomes increase b. it is a normal good, and its demand curve will shift to the right if buyers' incomes increase c. it is an inferior good, and its demand curve will shift to the right if buyers' incomes increase d. it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase e. there is insufficient information to determine whether the good is normal or inferior

If the marginal product of labor is positive and increasing, then the total product of labor curve is a. constant b. upward sloping and becoming steeper c. downward sloping and becoming flatter d. lies above the total cost curve e. lies below the total cost curve

If the marginal product of labor rises, the marginal cost of output a. rises b. falls c. remains constant d. rises and then falls e. dampens

If the physical plant for a corporation is considered to be a fixed input, then a. it is held constant in the long run b. it can be changed in the long run c. labor must be a variable input d. technology must be changing e. the firm will lose money in the short run, except under perfect competition

If the sellers in a market are aware of their strategic interdependence, then a. each firm bases its pricing and output decisions on the monopoly model b. each firm, when making pricing or output decisions, must consider the reactions of its competitors c. the firms have little incentive to collude in their pricing and output decisions d. the firms undertake little advertising because they cannot recoup the cost through higher prices e. no firm is able to earn above-normal profit in the long run

In comparing long-run and short-run costs, which of the following statements is true at each level of output? a. long-run total cost is always less than short-run total costs b. long-run total cost cannot exceed short-run total cost c. long-run and short-run total costs are equal when fixed costs are large d. firms usually make decisions about production levels based on long-run costs rather than short-run costs e. short-run total cost cannot exceed long-run total cost

In game theory a listing of the rewards or punishments that each player will receive for each possible combination of strategies is called a. the marginal strategy schedule b. the payoff matrix c. strategic planning d. the input-output matrix e. the game listing payoff

In many markets for personal services (such as shoe repair or lawn care) with low start-up costs, a. production exhibits constant returns to scale b. economies of scale are exhausted rapidly c. economies of scale are exhausted slowly d. economies of scale are never exhausted e. there are only short-run costs, no long-run costs

In the long run, a monopolistic competitor will a. always produce at minimum efficient scale b. produce too little output to achieve minimum cost per unit c. use limit pricing to forestall competition d. earn economic profits e. standardize its product

In the short run, a monopolistically competitive firm a. must earn zero economic profit b. may earn positive or negative economic profits c. will produce output up at the point where TR = TC d. will be protected from competition by barriers to entry e. will equate price and marginal cost

In which market structure do firms consider the actions of their rivals when setting prices and output? a. monopoly b. oligopoly c. perfect competition d. both monopoly and perfect competition e. monopolistic competition

Paul the Pizza Man used a new method to streamline pizza assembly that allowed him to make more pizzas and thus make greater revenue. Paul began to earn positive economic profits. In the long run, Paul will a. continue to earn economic profits b. earn zero economic profits because other pizza places will begin to use his system c. continue to earn economic profits because Paul will get a patent on his new method d. earn negative economic profits because innovators always loose money e. earn zero economic profits because the government does not allow monopolistically competitive firms to earn economic profits

Since the demand curve faced by a monopolistically competitive firm is downward sloping, a. the firm is a price-taker in the short run b. in the long run there will be excess capacity c. the output decisions of one firm will influence profits of all other firms d. the product in the market is viewed by consumers as being standardized e. the ATC curve is U-shaped

Suppose a local bookstore notices that a 2 percent increase in book prices leads to a 2 percent decrease in the number of books sold. Which of the following is true? a. Demand for books is price elastic. b. The store's sales revenue did not change. c. Demand for books is price inelastic. d. Demand for books is perfectly inelastic. e. The bookstore could increase revenue by further lowering prices.

Suppose that minimum efficient scale is approximately 20 percent of maximum potential market demand. In that case, a. there will be approximately 20 firms in the market b. we should expect to see a few large competitors c. we should expect to see many small competitors d. we should expect a natural monopoly to emerge e. minimum efficient scale is too small for perfect competition to exist

Suppose that the income elasticity of demand for fresh vegetables is 0.26. If buyers' incomes rise by 10 percent, then a. the demand curve for fresh vegetables will shift to the left b. the quantity of fresh vegetables demanded will rise by 2.6 percent c. the quantity of fresh vegetables demanded will rise by 12.6 percent d. there will be a movement down and to the right on the demand curve for fresh vegetables e. there will be a movement up and to the left along the demand curve for fresh vegetables

Tacit collusion among firms involves explicit agreements on pricing and output levels. a. True b. False

The demand curve faced by a monopolistically competitive firm a. is the same as the market demand curve b. is less elastic than the one faced by firms in perfect competition c. is perfectly elastic d. is perfectly inelastic e. has a constant slope

The influence of technological change on market structure a. invariably leads to domination by a few firms b. depends on whether it increases or decreases minimum efficient scale c. tends to increase concentration d. depends on whether it increases or decreases the product's value e. depends on foreign competition

The key characteristic of oligopoly is a. that firms are price takers b. strategic interaction among firms c. strategic independence among firms d. that firms deal with few resource suppliers e. a low minimum efficient scale of production

The minimum points of the average variable cost and average total cost curves occur where a. the marginal cost curve lies below the average variable cost and average total cost curves b. the marginal cost curve intersects those curves c. wages are the lowest d. the slope of total cost is the smallest e. the elasticity of demand is unitary

The more narrowly a good is defined, the a. easier it is to find substitutes, and the less price-elastic is the demand b. easier it is to find substitutes, and the more price-elastic is the demand c. more difficult it is to find substitutes, and the less price-elastic is the demand d. more difficult it is to find substitutes, and the more price-elastic is the demand e. more difficult it is to find substitutes, but this has no impact on the price elasticity of demand

The outcomes of different combinations of strategies by two players in a game are indicated in the a. strategy box b. payoff matrix c. competition matrix d. outcome dilemma e. collusion matrix

The percentage change in quantity demanded divided by the percentage change in income is referred to as the a. price elasticity of demand b. income elasticity of demand c. cross-price elasticity of demand d. slope of the demand curve e. demand curve

The price elasticity of demand is important to firms because a. it explains the relationship between income and demand for the goods they sell b. it shows how price changes affect total expenditures on the goods they sell c. the law of demand suggests that elasticity falls as total expenditures continuously rises d. it helps identify the equilibrium price and quantity in the market e. it relates price to supply

The price elasticity of supply a. is a number between 0 and 1. b. measures the percent change in quantity supply as a result of a 1-percent change in price c. measures the percent change in quantity supplied as a result of a 1-percent change in cost. d. measures the shift in supply as the result of a price change e. measures the movement of a supply curve along a fixed demand curve

The sensitivity of one economic variable to changes in another variable is known as a. the variability coefficient b. elasticity c. the sensitivity coefficient d. the cross-variability coefficient e. the law of demand

The total cost to a firm of producing zero units of output is a. zero in both the short run and the long run b. its fixed cost in the short run, zero in the long run c. its fixed cost in the long run, zero in the short run d. its fixed cost in both the short run and the long run e. its variable cost in both the short run and the long run

U.S. antitrust enforcement policies have focused on a. encouraging price-fixing agreements to stabilize market prices b. limiting the activities of large firms when consumers are being harmed c. removing management from firms whose economic profits are excessive d. encouraging mergers in selected markets e. limiting output levels of firms in competitive markets

Under price leadership a. the leader must be the dominant firm in the industry b. all firms follow price changes initiated by the leader c. price cuts are followed by other firms in the industry, but price increases are not d. price increases are followed by other firms in the industry, but price cuts are not e. price wars often occur as a result of tit-for-tat strategies

When firms cooperate without an explicit agreement, they are engaging in a. explicit collusion b. tacit collusion c. reverse collusion d. inclusion e. rent seeking

When oligopolists make joint decisions concerning their prices and output levels, they are a. a natural oligopoly b. colluding c. a duopoly d. a homogeneous oligopoly e. practicing bilateralism

When oligopolists secretly cooperate for their mutual benefit they are engaging in a. inclusion b. collusion c. seclusion d. exclusion e. discrimination

Which concept is best illustrated by the "prisoner's dilemma"? a. product standardization b. interaction c. profit maximization d. marginal analysis e. average total cost

Which of the following best describes real-world U.S. markets? a. In most markets, the firms face steep demand curves for their output. b. They combine characteristics of monopolistic competition, oligopoly, and monopoly. c. Effective competition exists in only about 25 percent of those markets. d. The dominant share of U.S. manufacturing output is produced by firms with the power to vary their prices over a wide range. e. Perfect competition is useful as a model for very few U.S. markets.

Which of the following best describes the idea of excess capacity in monopolistic competition? a. Firms produce more output than is socially desirable. b. The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. c. Due to product differentiation, firms choose output levels at which P > ATC. d. Firms keep some surplus output on hand in case there is a shift in demand for their product. e. The collective output of all firms in the market typically exceeds the quantity demanded.

Which of the following formulas is not correct? a. ATC = AVC + (TFC/Q) b. TVC = TC/Q c. TC = TFC + TVC d. AFC = TFC/Q e. TVC = AVC × Q

Which of the following is an example of a cartel? a. AFL-CIO b. OPEC c. United Auto Workers Union d. NATO e. Organization of American States

Which of the following statements about straight-line demand curves is true? a. The price elasticity of demand becomes larger in absolute value as price falls. b. The price elasticity of demand becomes smaller in absolute value as price falls. c. The price elasticity of demand is constant along the curve. d. The price elasticity of demand and the slope of the demand curve are the same. e. Demand is price elastic everywhere along the curve.

With economies of scale, a firm can continue to lower its cost per unit by increasing output a. without limit b. up to the minimum efficient scale c. until the firm is meeting market demand single-handedly d. to some point between the minimum efficient scale and the market demand curve e. halfway to the minimum efficient scale

If the price of a good increases from $20 to $25 and the quantity demanded declines from 15 to 10 units of the good, the price elasticity of demand is 5. a. True b. False

B (((10-15)/12.5) / ((25-20)/22.4) = 1.8)

If a 5 percent increase in income leads to a 15 percent increase in the quantity demanded of a service, then the income elasticity of demand for that service equals 0.33. a. True b. False

B (15 / 5 = 3)

If a 10 percent rise in the price of bananas leads to a 20 percent reduction in the quantity of bananas demanded, then the price elasticity of demand is 0.50. a. True b. False

B (20 / 10 = 2)

Advertising always results in a more elastic demand curve for the firm's product. a. True b. False

B (???)

Monopolistic competition exists when there is one large firm in an otherwise perfectly competitive market. a. True b. False

B (???)

Since advertising increases a firm's average total cost, consumers ultimately pay for the cost of advertising in the form of a higher price in the long run. It is not possible for a firm to end up with a lower profit-maximizing price as the result of advertising. a. True b. False

B (???)

Ink jet printers are a normal good only if, as income falls by a certain percentage, the quantity demanded rises by an even greater percentage. a. True b. False

B (in order for printers to be a normal good, income elasticity must be positive)

Monopolistically competitive firms are similar to perfectly competitive firms in the sense that both face horizontal demand curves for their product. a. True b. False

B (monopolistically competitive firms face a downward sloping demand curve)

Total product begins to decline when diminishing marginal returns are first experienced. a. True b. False

B (the additional total output gets smaller and smaller with each worker hired)

Total fixed costs decrease as output expands. a. True b. False

B (total fixed costs are constant regardless of output)

If a change in price does not lead to any change in revenue, then demand over that range of prices is inelastic. a. True b. False

B (unit elastic)

A government's public pension system is financed by a 10% payroll (labor income) tax only on the first $100,000 of labor income. For labor incomes up to $100,000, this tax system is _______________ ; for labor incomes above $100,000, this tax system is ____________. . A) Progressive; regressive B) Proportional; regressive C) Proportional; progressive D) Progressive; proportional

B) Proportional; regressive

The Moldavian government imposes a per lb. tax on pear consumers that reduces the equilibrium quantity of pears to 6 lbs. of pears. A tax of results in this new equilibrium quantity of 6 lbs. of pears, and this tax burdens more. A. $6/lb.; consumers B. $3/lb.; consumers C. $6/lb.; producers D. $3/lb.; producers

B. $3/lb.; consumers

The demand and supply curves for kumquats are given below: QD = 12 - P P: $/lb. of kumquats QS = 2P Q: lbs. of kumquats The kumquat market is initially in free market equilibrium. A tax of $6/lb. of kumquats levied on kumquat consumers will: (i) Burden kumquat producers more than kumquat consumers. (ii) Raise government revenue of $24. A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

B. (ii) is true.

The supply for apples is given by the following expression: QS = 100 + P P: $/lb.; Q: lbs. If the price of apples is $20/lb., what is the quantity supplied? A. 80 lbs. B. 120 lbs. C. 100 lbs. D. 20 lbs.

B. 120 lbs.

If Wanda's income is $60,000, her marginal tax rate is , and her average tax rate is . A. 20%; 20% B. 20%; 16% C. 10%; 20% D. Not enough information is given.

B. 20%; 16%

As a result of this combination of policy changes, Moldavia . A. Imports 6 lbs. of pears. B. Exports 6 lbs. of pears. C. Neither imports nor exports pears. D. None of the above.

B. Exports 6 lbs. of pears.

As a result of this combination of policy changes, which of the following increases in Moldavia? I. Domestic producer surplus II. Total domestic social surplus III. Government tax revenue A. I only B. I and II only C. I and III only D. I, II, and III

B. I and II only

If the government bans the good here and declares that Q* must be zero, which of the following will also be zero? I. Total Social Surplus II. Deadweight Loss (DWL) III. Externality Costs A. I only B. I and III only C. I, II, and III D. III only

B. I and III only

Consider the bread market. A fall in the price of flour (an input to bread production) AND a decrease in the price of jam (a complement to bread) will definitely: A. Increase the equilibrium price of bread B. Increase the equilibrium quantity of bread C. Decrease the equilibrium price of bread D. Decrease the equilibrium quantity of bread

B. Increase the equilibrium quantity of bread

Coffee and donuts are complements. Both coffee demand and donut demand are inelastic. An increase in the wages of workers producing donuts will: A. Increase total expenditure on both donuts and coffee. B. Increase total expenditure on donuts but decrease total expenditure on coffee. C. Decrease total expenditure on donuts but increase total expenditure on coffee. D. Decrease total expenditure on both donuts and coffee.

B. Increase total expenditure on donuts but decrease total expenditure on coffee.

The price elasticity of demand: A. Is lower for inferior goods than it is for normal goods. B. Is lower for goods with few substitutes. C. Is lower for luxuries than it is for necessities. D. Is equal to the slope of the demand curve.

B. Is lower for goods with few substitutes.

The following chart shows the yearly productivities of the average U.S. worker and the average French worker in wine and bread. WINE BREAD (bottles/worker) (loaves/worker) U.S. 20 60 France 10 10 According to our trade models, which of the following statements is true? A. Mutually beneficial trade is not possible in this case because France is equally productive in both wine and bread. B. Mutually beneficial trade can occur at a ratio of 2 loaves of bread per bottle of wine. C. Mutually beneficial trade can occur at a ratio of 2 bottles of wine per loaf of bread. D. Mutually beneficial trade is not possible in this case because the U.S. has an absolute advantage in both wine production and bread production

B. Mutually beneficial trade can occur at a ratio of 2 loaves of bread per bottle of wine.

Why are individuals, companies, and governments required to constantly make choices about how to best utilize resources? A. There is always a shortage of resources. B. There is always a scarcity of resources. C. They all have more needs than wants. D. They all have more wants than needs.

B. There is always a scarcity of resources.

Suppose you live in a society where you are taxed more heavily if you live with your spouse/partner as an unmarried couple than if you lived together as a married couple. Suppose this same society taxes wealthier people more than poor people. Economists would classify these components of the society's tax system as: A. Vertically inequitable but horizontally equitable. B. Vertically equitable but horizontally inequitable. C. Both vertically and horizontally equitable. D. Both vertically and horizontally inequitable.

B. Vertically equitable but horizontally inequitable.

A trade-off is A. a purchase in a marketplace. B. an alternative that we sacrifice when we make a decision. C. any good or service a consumer needs. D. a factor of production.

B. an alternative that we sacrifice when we make a decision.

Factors of production are A. all the human-made goods that are used to produce other goods and services; tools and buildings. B. land, labor, and capital; the three groups of resources that are used to make all goods and services. C. the skills and knowledge gained by a worker through education and experience. D. natural resources that are used to make goods and services.

B. land, labor, and capital; the three groups of resources that are used to make all goods and services.

What are you doing when you make a decision at the margin? A. taking an all or nothing approach to a problem B. reviewing several options of how to use one additional unit of a resource C. examining two primary options and their trade-offs before making a decision D. refusing to make a choice

B. reviewing several options of how to use one additional unit of a resource

Limited quantities of resources to meet unlimited wants is a A. shortage. B. scarcity. C. good. D. need.

B. scarcity

Production possibilities graphs are important tools for A. comparing costs and profits of producing goods and services. B. showing ways to use an economy's productive resources. C. demonstrating which products will sell better than others. D. determining the underutilization of an economy's resources.

B. showing ways to use an economy's productive resources.

Deciding whether to do or use one additional unit of some resource is A. a factor of production. B. thinking at the margin. C. the study of economics. D. physical capital.

B. thinking at the margin.

Using fewer resources than an economy is capable of using is A. the law of decreasing costs. B. underutilization. C. effectiveness. D. the law of increasing costs.

B. underutilization.

Efficiency is A. using the maximum number of resources to produce goods and services. B. using resources in such a way as to maximize the production of goods and services. C. finding the most expensive, time-consuming way to produce a good or service. D. replacing old ways of producing goods and services with new tools and methods.

B. using resources in such a way as to maximize the production of goods and services.

$10,000; -$20,000

Bessie wants to calculate the accounting and economic profits on her cattle farm in Nebraska. She pays $30,000 per year for the cost of raising cattle, $80,000 in wages, $20,000 in insurance, and she forgoes $30,000 per year that she could make as a teacher. If her total revenue equals $140,000, that means her accounting profit is ________ and her economic profit is ________.

A cartel a. has one firm that acts as the price leader b. is a group of firms engaged in price discrimination c. acts like a monopoly d. involves competition between rival firms e. prices its output equal to marginal cost

A firm's explicit costs are a. the opportunity costs of the owners b. its depreciation costs c. the money paid for use of inputs d. the foregone rents on owner occupied office space e. irrelevant to the determination of economic profit

A local store noticed that when it increased the price of milk from $2.50 to $3.50 per gallon, it sold the same amount of milk per week (165 gallons). Since everything else remained the same, we would say the a. demand for milk is perfectly elastic b. demand for milk is elastic c. demand for milk is perfectly inelastic d. demand for milk is unitary elastic e. law of supply does not apply in this situation

A lumpy input is one that a. is infinitely divisible b. is not smooth c. can only be adjusted in large amounts d. can not be legally employed e. can be easily adjusted in small amounts

A market with more than one seller and significant barriers to entry is called a. perfect competition b. monopolistic competition c. an oligopoly d. collusive e. regulated

A strategy that is best for a player regardless of the strategy of the other player is called a(n) a. subsistence strategy b. determinant strategy c. dominant strategy d. independent strategy e. autonomous strategy

A two-player game has an equilibrium outcome a. only if both players have dominant strategies b. if neither player has a dominant strategy c. whenever one player has a dominant strategy d. only with tit-for-tat strategy e. only with repeated trials

After John's income rose by 8 percent, the amount of chicken he consumed fell by 2 percent. This means that a. his income elasticity for chicken is positive b. chicken is a normal good for John c. his demand curve for chicken shifted to the left d. his demand curve for chicken shifted to the right e. John is spending more of his income on chicken than before

All of the following, except one, are sources of product differentiation. Which is the exception? a. product quality b. location c. price d. consumer tastes e. buyers' perceptions

Along a perfectly elastic supply curve a. the quantity supplied is always the same b. the price elasticity of demand is always the same c. the price is always the same d. the cross-price elasticity of demand is always the same e. the elasticity of supply is different at each point.

Along its long-run total cost curve, a firm is producing a. at the output level for each plant size that has the lowest cost b. at the minimum points of its various total cost curves c. each level of output using the input mix that has the lowest cost d. each level of output using the fewest possible inputs e. at the output level for each plant size that uses the fewest possible inputs

If the percentage change in quantity demanded is greater (in absolute value) than the percentage change in price, then demand a. determines supply b. is indeterminate c. is elastic d. is inelastic e. is unit elastic

An oligopoly is a market a. dominated by a single seller b. dominated by a single buyer c. dominated by a small number of strategically interacting firms d. with many buyers and sellers, no barriers to entry and differentiated products e. with many buyers and sellers, no barriers to entry and a standardized product

Antitrust policies attempt to protect consumers by a. imposing criminal sanctions on firms with excessive economic profits b. ensuring that firms do not produce more than the socially desirable level of output c. making sure that there is a sufficient amount of competition in markets d. requiring all products to have an implied warranty e. disseminating rules and regulations for consumers to use in the marketplace

As a firm increases its output in the short run, average fixed cost a. rises steadily b. falls and then rises c. falls steadily d. rises and then falls e. remains unchanged

As a result of advertising prices in monopolistic competition, are a. higher because firms earn economic profits in the long run b. higher because increased output leads to higher production costs per unit c. lower if increased output allows lower average production costs per unit that more than offset the advertising costs d. lower if advertising costs per unit fall as output increases e. higher because advertising shifts each firm's demand curve to the right and make it flatter

Average total cost is a. the change in cost as output decreases b. the change in cost as output increases c. TC / quantity of output d. MC - TC e. AVC - AFC

Consider a good with a price elasticity equal to 1 at every point on its demand curve. Which of the following statements is correct? a. Total revenue always rises exactly in proportion to a drop in the price. b. Total revenue always rises exactly in proportion to a rise in the price. c. Total revenue does not change if the price changes. d. Total revenue drops to zero whenever the price rises. e. Total revenue always doubles if the price drops.

Daniel's consumption of pizzas drops from 6 per week to 4 per week when the price rises from $9 to $11. His price elasticity of demand for pizza equals a. 0.5 b. 1 c. 2 d. 0.08 e. 1.7

Fixed inputs are those whose a. quantity changes as the level of output changes b. costs are irreversible c. quantity remains constant regardless of the level of output d. quantity determines the level of profit e. appearance was damaged while being transported, but has been fixed

For the monopolistically competitive firm, a. competition is blocked by barriers to entry b. limit pricing can forestall competition indefinitely c. marginal revenue is less than the product's price d. price discrimination is a key tool e. marginal revenue is equal to the product's price

If a cartel is formed in order to maximize the total profits of its members, it will a. charge the monopoly price, but produce more output than a monopoly would b. produce the monopoly output, but charge a lower price than a monopoly would c. charge the same price, and produce the same quantity that a monopoly would d. charge a higher price and produce more output than a monopoly would e. charge the monopoly price, but total output may be higher or lower than a monopoly's

If a firm increases its output level by 50 percent and, as a result, long-run total cost rises by 40 percent, the firm is experiencing a. diseconomies of scale b. constant returns to scale c. economies of scale d. increasing marginal returns e. diminishing marginal returns

If a market has more than one seller, but fewer sellers than under perfect competition, it is referred to as a. a monopoly b. competitive c. imperfect competition d. an efficient market e. optimal

If demand is price elastic, a decrease in seller's total revenue would result from a(n) a. decrease in price b. increase in quantity demanded c. increase in price d. decrease in income for an inferior good e. increase in total cost to the seller

If demand is price inelastic, a decrease in price a. raises total revenue to the seller b. raises total expenditure on the good, but not total revenue to the seller c. reduces total revenue to the seller d. leaves total revenue to the seller unchanged e. leaves total expenditure on the good unchanged

If firms in a market have been prohibited from reaching the minimum efficient scale, a. the market is probably perfectly competitive. b. the market is probably a monopoly. c. mergers will result if the restrictions are eliminated. d. the LRATC curve has been shifting upward. e. the LRATC curve has been shifting downward.

If minimum efficient scale is small relative to the maximum potential market, a. relatively large firms will have a cost advantage over relatively small firms b. the market price will be low c. relatively small firms will have a cost advantage over relatively large firms d. the market price will be high e. only one firm will survive in the long run.

If significant economies of scale continue as output increases, a. then small firms enjoy a cost advantage over large firms b. minimum efficient scale is small relative to market demand c. we have the case of a natural monopoly d. the market will disappear in the long run. e. all firms will become large.

If the firms in a monopolistically competitive market are earning short-run economic profits, then a. each existing firm will increase output in the long run as its marginal revenue curve shifts rightward b. each firm will experience an increase in the demand for its output in the long run c. each firm's profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms d. barriers to entry will enable them to earn economic profits in the long run e. decreased demand for a key input will reduce that input's price in the long run and lower each firm's average total cost curve

If the marginal product of labor falls, the marginal cost of output a. declines, then increases b. becomes negative c. rises d. remains constant e. falls

If the minimum efficient scale of production is small relative to the size of a market, then a. the industry will tend to be highly concentrated b. there will be much strategic interdependence among the sellers in the industry c. the industry is unlikely to be an oligopoly d. it is more likely that sellers in the industry will successfully collude e. there will be much merger activity in the industry

If there are diminishing marginal returns to labor, a. output diminishes as additional workers are added b. the management team grows as more workers are hired c. the rise in output becomes smaller and smaller with each successive worker hired d. the management team shrinks as successive workers are added e. macroeconomic business cycles are generated by microeconomic production functions

In a firm's planning horizon, the long run refers to a. a period of one year or more b. the term to which the current board of directors has been elected c. the period during which all of the firm's inputs can be varied d. the period during which at least one of the firm's inputs is fixed e. the period during which the level of available technology is fixed

In a price-leadership oligopoly, it is much simpler for the price leader to identify its dominant strategy when a. at least one price follower has a terminal strategy b. it expects competition from the other firms c. it expects other firms to match its prices d. the government actively seeks antitrust penalties e. price equals marginal cost

In general, the more of an individual's total budget that is spent on a given product, the a. greater the supply-side response b. less elastic is the demand for that good c. more elastic is the demand for that good d. more the demand curve will shift when the price changes e. less the demand curve will shift when the price changes

In monopolistic competition, product differentiation causes a. the firms to earn economic profits in the long run b. a horizontal demand curve for each firm's output c. the firms to operate with excess capacity d. significant barriers to entry e. high concentration ratios

In the United States, price-fixing cartels are a. ubiquitous b. nonexistent c. generally illegal d. discouraged the Department of Labor e. dominant in small industries with large numbers of firms

In the airline industry, tit-for-tat strategies have frequently led to a. reciprocal hiring practices b. cost-reducing innovations c. profit-destroying price wars d. pricing policies that encouraged the entry of new firms e. profit-enhancing wage bargains

In the long run, a. at least one of the firm's inputs is fixed b. customer tastes and preferences are fixed c. the firm may vary all inputs d. sunk costs become variable costs e. government intervention is inevitable

In the long run, entry ensures that the typical monopolistically competitive firm will a. produce at minimum efficient scale b. earn an economic profit c. earn a normal profit d. price its output at marginal cost e. standardize its product

In the prisoner's dilemma, a. the prisoners easily collude in order to achieve the best possible payoff for both b. only one player has a dominant strategy c. each player has a dominant strategy d. playing the dominant strategy leads to a better payoff for one prisoner than if the two jointly selected a strategy e. playing the dominant strategy leads to a better payoff for both prisoners than if the two jointly selected a strategy

One explanation for why oligopolies exist is that a. it is easier to regulate a smaller number of firms b. minimum efficient scale is small relative to the market, allowing a large number of firms to achieve minimum long-run average total cost c. minimum efficient scale is large relative to the market, allowing only a few firms to achieve minimum long-run average total cost d. minimum efficient scale may be greater than the market quantity demanded at the price equal to minimum long-run average total cost e. competitive pricing drives firms from the market

Price elasticity of supply a. is always a number between 0 and 1 b. is always a negative number c. is always greater than or equal to 0 d. is always greater than 1. e. can take on any value.

Price leadership a. is a form of explicit collusion b. works only when firms have dominant strategies c. is a form of tacit collusion d. reduces long-run economic profit for individual firms e. rarely is effective in setting prices in oligopolistic markets

Samantha has been working for a law firm and earning an annual salary of $90,000. She decides to open her own practice. 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. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $1,000. Assuming that there are no additional expenses, Samantha's annual implicit costs will equal a. $55,200 b. $221,400 c. $91,000 d. $146,200 e. $145,200

Sunk costs should be ignored in decision making because they a. increase the cost of the transaction b. lead to an increase in the opportunity cost of any decision c. have already been paid d. often exceed marginal and average costs e. are usually negligible when compared with the explicit costs of decisions

The airline and long-distance telephone service industries are examples of a. monopolistic competition b. monopolies c. oligopolies d. perfect competition e. oligopolistic competition

The change in total output when one additional unit of labor is hired is known as the a. capacity utilization rate b. average product of labor c. marginal product of labor d. total product of labor e. marginal output of labor

The concept of elasticity is used to a. indicate the economy's ability to rebound from a recession b. measure the robustness of a variable c. measure the sensitivity of one variable to changes in another d. measure price changes e. measure income changes

The cross-price elasticity of demand is a. price elasticity of demand multiplied by the income elasticity of demand b. the percent change in the price of one commodity with respect to a one-percent change in the quantity demanded of another commodity c. the percent change in the demand for one commodity with respect to a one-percent change in the price of another commodity d. negative for substitute goods e. price elasticity of demand crossed with consumer incomes

The effect of a change in the price of tea on the quantity of coffee demanded is measured by the a. price elasticity of demand b. substitute elasticity of demand c. cross-price elasticity of demand d. income elasticity of demand e. alternative elasticity of demand

The fact that travel on buses fell as incomes increased in many cities suggests that a. bus travel is a normal good b. the law of demand does not apply to bus travel c. bus travel is an inferior good d. there are no good substitute goods for bus travel

The income elasticity of demand measures a. the relative certainty of future income b. how elastic supply is compared to demand c. the percent change in quantity demanded relative to the percent change in income d. the percent change in income relative to the percent change in quantity demanded e. how much income will stretch to make expected payments

The law of diminishing marginal returns says that a. total product will eventually remain constant as more of an input is added to production b. total revenue decreases as output increases, holding technology fixed c. marginal product eventually falls as more of an input is employed d. the quantity demanded of a good decreases as its price rises e. utility falls as more of a good is consumed

The law of diminishing marginal returns says that as additional units of a variable input are added to a. fixed amounts of other inputs, total output will eventually remain constant b. varying amounts of other inputs, total output will eventually decline c. fixed amounts of other inputs, the resulting increases in total output will eventually become smaller d. varying amount of other inputs, the resulting increases in total output will eventually become smaller e. a declining amount of output, technology will eventually deteriorate

The long-run price elasticity of demand for a good is a. zero b. smaller (in absolute value) than the short-run price elasticity c. larger (in absolute value) than the short-run price elasticity d. infinite e. the same as the short-run elasticity

The output level at which a firm's long-run average total cost is minimized is known as its a. profit-maximizing output level b. long-run marginal cost c. minimum efficient scale d. revenue maximization level e. equilibrium cost structure

The price elasticity of demand is the a. percentage change in price divided by the percentage change in quantity demanded b. average change in price divided by the average change in quantity demanded c. percentage change in quantity demanded divided by the percentage change in price d. average change in price divided by the average change in quantity demanded e. percentage change in quantity demanded divided by the average change in price

The price elasticity of demand measures the a. responsiveness of a good's price to a change in quantity demanded b. adaptability of suppliers when a change in demand alters the price of a good c. responsiveness of quantity demanded to a change in a good's price d. adaptability of buyers when there is a change in demand e. responsiveness of quantity supplied to a change in quantity demanded

The price elasticity of demand will be larger in absolute value if a. expenditure on the good represents a smaller proportion of the consumer's total expenditure b. we define the good more broadly c. we define the good more narrowly d. the number of substitutes is smaller e. the number of consumers is larger

The supply of a good is more price elastic, a. the fewer alternatives there are to producing the good in question b. the more broadly the market for the good is defined c. the longer the time horizon over which it is measured d. the higher the cost of production e. the more elastic the demand for that good.

The vertical distance between a firm's total cost curve and its total variable cost curve a. is zero b. is negative when the firm incurs fixed costs in the short run c. represents total fixed costs d. represents marginal costs e. represents average fixed costs

U.S. antitrust enforcement policies have focused on a. breaking up any firm with more than a 10 percent market share b. forcing firms to produce output at the point where P = MC c. preventing price-fixing arrangements d. preventing "golden parachutes" e. enforcing market codes of ethics

Variable costs are a. the same as sunk costs b. irrelevant to decision making, because they are sunk c. the costs of inputs that vary with the level of production d. the costs of inputs that do not vary with the level of production e. the additional total cost associated with producing an additional unit of output

When long-run average total cost decreases as output increases, a firm experiences a. increasing average fixed cost b. decreasing total cost c. economies of scale d. diseconomies of scale e. constant returns to scale

When there are many buyers and sellers, no significant barriers to entry, and a differentiated product, the market structure is called a. an oligopoly b. perfect competition c. monopolistic competition d. a monopoly e. unbalanced monopoly

When there is a positive cross-price elasticity of demand between two goods, a. they are independent goods b. they are complementary goods c. they are substitute goods d. they are normal goods e. the income elasticity of demand is positive

Which of the following always decreases as output increases? a. ATC b. MC c. AFC d. TC e. TVC

Which of the following goods is likely to have the most price inelastic demand? a. margarine b. Tide detergent c. cigarettes d. Coca-Cola e. ground beef

Which of the following is a distinguishing characteristic of oligopolies? a. a standardized product b. the goal of profit maximization c. the interdependence among firms d. downward-sloping demand curves faced by firms e. a downward-sloping market demand curve

Which of the following is irrelevant when deciding whether to undertake an action? a. opportunity costs b. implicit costs c. sunk costs d. implicit costs and explicit costs e. fixed costs and implicit costs

Which of the following must be true in an oligopoly? a. The firms produce a differentiated product. b. There is one dominant firm in the market. c. The firms are strategically interacting. d. The market is international in scope. e. There are no significant barriers to entry.

Any human-made resource that is used to create other goods and/or services is A. a service. B. an entrepreneur. C. capital. D. labor.

C. capital

Which of the following statements concerning the slope and price elasticity of demand along a straight-line demand curve is correct? a. Slope measures the change in quantity resulting from a one-dollar change in price. b. Elasticity measures the percent change in price resulting from a one-percent change in quantity demanded. c. Slope measures the dollar change in price for a one-unit change in quantity demanded. d. Elasticity measures the unit change in quantity demanded resulting from a one-dollar change in price. e. Slope measures the percent change in price resulting from a one-percent change in quantity demanded.

Which of the following types of markets would be the most likely to maintain a successful collusive agreement? a. a market with many sellers, many buyers, unstable market demand, and privately negotiated prices b. a market with few sellers, many buyers, stable market demand, and privately negotiated prices c. a market with few sellers, many buyers, stable market demand, and publicized prices d. a market with many sellers, few buyers, stable market demand, and privately negotiated prices e. a market with few sellers, few buyers, unstable market demand, and publicized prices

Which of the following would likely be traded in a monopolistically competitive market? a. Electricity b. Airline Tickets c. Pizza d. Wheat e. Water

For each of the four roommates listed below, we chart their willingness to pay to watch a movie in their dorm room this weekend: Consumer Willingness to Pay Zoe $10 Virginia $20 Penelope $30 Tenley $40 If we assume that any roommate watching the movie does not affect the others' ability to do so, the social benefit of the movie is , because the movie is a with no . A. $40; private good; excludability B. $40; private good; rivalry in consumption C. $100; public good; rivalry in consumption D. $100; common resource; excludability

C. $100; public good; rivalry in consumption

Along the relevant portion of the supply curve, namely between the pre-tax and post-tax equilibria, the price elasticity of supply is . A. ½ B. 2 C. 1 D. ¼

C. 1

Hot dogs are an inferior good. Hot dogs and hamburgers are substitutes. Hot dogs and hot dog buns are complements. Which of the following would increase the equilibrium price of hot dogs? A. An increase in consumer incomes. B. An increase in the price of flour, an input to hot dog bun production. C. An increase in the wages of workers in hamburger production. D. An advance in the technology of producing hot dogs.

C. An increase in the wages of workers in hamburger production.

Firm A faces a constant marginal cost of carbon pollution reduction of $10/ton. The government is deciding between a carbon tax and a cap-and-trade permit system. Which of the following is (are) true? (i) If the carbon tax is $20/ton, this firm will respond by cleaning up its pollution. (ii) If the price of permits under a cap-and-trade system is $20/ton, this firm will respond by cleaning up its pollution. A. (i) is true. B. (ii) is true C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

C. Both (i) and (ii) are true.

In the market for bagels, a decrease in the price of flour [a factor input in bagel production] will result in a the curve for bagels. (i) Shift of; supply (ii) Movement along; demand A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

C. Both (i) and (ii) are true.

The diagram below shows equilibrium in the Moldavian apple market as a result of a $2/lb. tariff on imported apples. The government is considering replacing the tariff with a quota on imported apples. Which of the following is (are) true? (i) Replacing the current tariff in place with a quota of 40 lbs. of imported apples will not change domestic consumer surplus. (ii) Replacing the current tariff in place with a quota of 60 lbs. of imported apples will increase domestic consumer surplus. A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

C. Both (i) and (ii) are true.

For which combination below does any given per unit subsidy cost the government the LEAST? A. Elasticity of demand = 2; elasticity of supply = 2 B. Elasticity of demand = 0.5; elasticity of supply = 2 C. Elasticity of demand = 0.5; elasticity of supply = 0.5 D. Elasticity of demand = 2; elasticity of supply = 0.5

C. Elasticity of demand = 0.5; elasticity of supply = 0.5

Which of the following trade policies would benefit consumers, hurt producers, and increase the amount of trade? I. An increase in tariffs by an importing country. II. A decrease in tariffs by an importing country. III. Starting to allow trade when the world price is below the domestic autarkic (no-trade) price. IV. Starting to allow trade when the world price is above the domestic autarkic (no-trade) price. A. I only B. II only C. II and III only D. I and IV only

C. II and III only

A drought hits the market for wheat. If the equilibrium price of wheat rises by 10%, which of the following about total expenditure on wheat is true? A. If total expenditure falls by 10%, demand for wheat is unit elastic. You Answered B. If total expenditure does not change, demand for wheat is perfectly inelastic. C. If total expenditure falls by 10%, demand for wheat is elastic. D. If total expenditure does not change, demand for wheat is perfectly elastic.

C. If total expenditure falls by 10%, demand for wheat is elastic.

Given your answers to the previous two questions, we know that along the relevant portion of the demand curve, namely between the pre-tax and post-tax equilibria, the price elasticity of demand is . A. Elastic. B. Unit Elastic. C. Inelastic. D. Not enough information to tell.

C. Inelastic.

Which of the following is an entrepreneur? A. a lawyer for an insurance company who wins a medical malpractice suit B. an advertising copy writer who writes an award-winning commercial C. a computer repair shop owner who opens a second shop across town D. a doctor who volunteers her services in the aftermath of a hurricane

C. a computer repair shop owner who opens a second shop across town

What is something you might use to help you make a choice between two seemingly equal alternatives? A. a decision at the margin B. thinking at the margin C. a decision-making grid D. a guns and butter decsion

C. a decision-making grid

Using the factors of production to make one product always means that A. a nation can make more money. B. a company may experience a shortage of materials. C. fewer resources are left to make something else. D. it is possible to make too many of that product.

C. fewer resources are left to make something else.

A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods is A. shortage or scarcity. B. physical capital. C. guns or butter. D. swords or plowshares.

C. guns or butter.

For a commodity, say product "X", which of the following factors will cause a movement along the demand curve for "X"?

Change in the price of the product X

For economists

Cost is any payment for any resource used in production/ Implicit cost must be included in calculation of total cost

fixed costs

Costs that do not vary with the quantity of output produced

A dominant strategy is one that a. makes every player better off b. makes at least one player better off without hurting the competitiveness of any other player c. increases the total payoff for one player d. is best for a player, regardless of what strategy other players follow e. leads to quicker convergence to market equilibrium

A famous cartel that dramatically increased the price of oil in the mid-1970s was a. OTEC b. IMF c. OECD d. OPEC e. LDC

A perfectly elastic supply curve a. has an elasticity of 1 b. has an elasticity less than 1 c. has an elasticity of 0 d. is horizontal e. is upward sloping

A public university knows that demand from potential students is elastic. If the university wants to increase tuition revenue, it should a. raise its tuition rate b. hold its tuition rate constant and increase faculty salaries c. increase its financial aid d. lower its tuition rate e. increase its enrollment

A successful tit-for-tat strategy leads to a. explicit collusion b. a cartel c. a duopoly d. tacit collusion e. market disequilibrium

All of the following are examples of barriers to entry, except one. Which is the exception? a. significant economies of scale b. reputation of established firms c. special deals with distributors d. excessive prices e. patents

An oligopolistic industry in which one firm sets the price is a. a cartel b. a duopoly c. a monopoly d. price leadership e. a price-discriminating duopolist

Any action, other than lowering its price, that a firm undertakes to increase the demand for its output is called a. limit pricing b. price enhancement c. illicit competition d. nonprice competition e. price intensive competition

Average fixed cost is a. the sum of variable and fixed costs b. total cost minus variable cost c. variable cost plus marginal cost d. total fixed cost per unit of output e. constant as output changes

Average variable cost is a. the change in cost as output decreases b. the change in cost as output increases c. TC / quantity of output d. TVC / quantity of output e. AFC + AVC

Demand for a good is likely to be less elastic a. the more narrowly defined the good is b. the larger the good's share of the buyer's budget c. in the long run than in the short run d. the smaller the number of substitute goods available e. at high prices

Each of the following, except one, is a characteristic of a monopolistically competitive market. Which is the exception? a. differentiated products b. no significant barriers to entry c. many buyers d. a standardized product e. many sellers

Firms in a monopolistically competitive industry maximize profits by a. equating total revenue and total cost b. treating price as given and maximizing output c. minimizing costs d. producing the level of output at which MR = MC e. producing the level of output at which TR = TC

Firms will have a greater incentive to cheat on a collusive agreement when a. the number of sellers is relatively small b. total market sales are small c. the market is perfectly competitive d. demand is rapidly changing e. prices are known to all firms in the market

For a given level of output, the short-run total cost of production a. always falls below the long-run total cost of production b. always exceeds the long-run total cost of production c. always equals the long-run total cost of production d. may exceed or equal the long-run total cost of production e. may exceed or fall below the long-run total cost of production

For which of the following categories of goods is demand likely to be the most price elastic? a. automobiles b. foreign-made automobiles c. foreign-made sports cars d. a BMW sports car

For which of the following medical services is the income elasticity of demand likely to be the smallest? a. face-lifts b. plastic surgery c. manicures d. emergency services after a car accident e. hair transplants

Game theory is based on the idea that a. government determines the rules of the game b. firms are strategically independent c. firms are price takers d. a player's strategy must take account of the strategies followed by other players e. a player's strategy must be independent of the strategies followed by other players

If a decrease in the price of one good causes the demand curve for another good to shift to the left, the two goods must be a. inferior b. normal goods c. inferior goods d. substitutes e. complements

variable costs

costs that vary directly with the level of production

If a firm earns zero economic profit in the long run, then it a. must be in a perfectly competitive market b. must be in a monopolistically competitive market c. cannot be in a monopolistically competitive market d. could be in any of the four major market structures e. is not in an oligopoly

If a firm experiences economies of scale, then, as output increases, a. short-run total costs decline b. long-run total costs rises proportionately more than output c. short-run marginal cost must decline d. long-run total cost rises proportionately less than output e. demand increases

If a monopolistically competitive firm engages in a successful advertising campaign resulting in above positive economic profits then in the long run that firm will a. continue to earn positive economic profits because successful advertising is one of the barriers to entry b. earn zero economic profits because the government will begin to regulate the industry c. earn negative economic profits because it won't be able to advertise indefinitely d. earn zero economic profits because other firms will also begin to advertise e. continue to earn positive economic profits because most monopolistically competitive firms can earn economic profits in the long run

If consumers are loyal to the products of an existing firm, this loyalty may a. reduce the incentives for the firm to invest b. result in more responsive management and better quality products c. reduce the demand for imported goods d. serve as a barrier to new entry into the market e. force the firm to produce at higher costs

If demand is price inelastic, a. price and total revenue change in opposite directions b. a seller should decrease the price to increase total revenue c. too few goods are being produced from society's point of view d. price and total revenue change in the same direction e. the market can never be in equilibrium

If marginal cost is greater than average total cost then a. profits are increasing b. economies of scale are becoming greater c. average total cost remains constant d. average total cost is increasing e. average total cost is decreasing

If the demand for a good is price inelastic, a decrease in total revenue from the good would result from a(n) a. increase in price b. decrease in quantity demanded c. favorable shift in tastes and preferences d. decrease in price e. increase in consumers' incomes

If the income elasticity of demand for a good is -2.5, then a. it is a normal good, and its demand curve will shift to the left if buyers' incomes increase b. it is a normal good, and its demand curve will shift to the right if buyers' incomes increase c. it is an inferior good, and its demand curve will shift to the right if buyers' incomes increase d. it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase e. there is insufficient information to determine whether the good is normal or inferior

If the price of food falls by 10 percent and the quantity sold increases by 5 percent, then the price elasticity of demand in that range equals a. 2, and demand is elastic b. 0.5, and demand is elastic c. 2, and demand is inelastic d. 0.5, and demand is inelastic e. 15, and demand is elastic

If there are a large number of sellers in a market, a. it is difficult for firms to cheat on a collusive agreement b. a cartel is unlikely to break down c. prices are higher than in smaller markets d. a cartel is likely to break down e. perfect competition occurs in the long run

If two commodities are substitutes, then a. they tend to be used together by consumers b. their prices are generally regulated by the government c. an increase in the price of one of them increases the supply of the other d. the cross-price elasticity of demand is positive e. the cross-price elasticity of demand is negative

In addition to shifting its demand curve to the right, a firm may engage in advertising in order to a. make its demand curve more elastic b. increase the elasticity of its supply curve c. discourage competition d. make its demand curve less elastic e. decrease consumer awareness

In measuring the sensitivity of demand, the a. price and income elasticities refer to movements along the demand curve; other elasticities refer to shifts of the entire demand curve b. price and cross-price elasticities analyze movements along the demand curve; other elasticities refer to shifts of the entire demand curve c. income and cross-price elasticities refer to movements along the demand curve; price elasticity refers to shifts of the entire demand curve d. price elasticity refers to movements along the demand curve; income and cross-price elasticities refer to shifts of the entire demand curve e. income elasticity refers to movements along the demand curve; other elasticities refer to shifts of the entire demand curve

In monopolistic competition, nonprice competition a. allows firms to earn above-normal profit in the long run b. initially causes a leftward shift in the demand curve for each firm's output c. causes each firm to move upward along a given average total cost curve d. might lead to economic profit in the short run e. causes each firm to move toward the right along the given demand curve for its output

In order for a market to be classified as an oligopoly, a. there must be fewer than 10 firms b. the four largest firms must have 90 percent of the market c. there must be fewer than 5 firms d. the firms must be strategically interacting e. the firms must be strategically independent

In the long run, equilibrium for a monopolistically competitive firm resembles equilibrium for a monopoly in the sense that a. both types of firms are able to earn economic profits b. marginal cost exceeds marginal revenue c. price equals marginal cost d. price exceeds marginal cost e. average revenue exceeds price

In the short run, a. utilization of any input can be varied b. production takes less than one year c. all resources are limited in supply d. utilization of some inputs is assumed constant e. equilibrium cannot occur

In the short run, a monopolistic competitor can a. not earn an economic profit because of competition b. use limit pricing to reduce competition c. maximize profits by charging the highest price the market will bear d. earn an economic profit e. maximize profit by selecting the minimum efficient scale

The maximizing and rationality assumptions about economic person assumes that people

compare alternatives and choose the one that maximizes their pleasure

It is difficult to explain how firms behave in an oligopoly because a. they produce differentiated products b. there are many suppliers and few buyers c. they do not attempt to maximize profits d. each takes into account the behavior of other firms when making pricing decisions e. there are no barriers to entry or exit

Last month, Sally spent $3,000 in repairing her old car. Now her car requires an additional $2,000 in repairs. She could get a comparable car for $2,500. She should a. repair her car because the money she has already spent repairing the car ($3,000) exceeds the price of the new car ($2,500) b. buy a new car because sunk costs should be ignored in decision making c. buy a new car because the price of the new car ($2,500) is less than the total amount she would spend on her current car ($5,000) d. repair her car since the cost of repairing it is lower than the cost of buying another car e. repair the car or buy a comparable one because the opportunity costs are the same

Moving downward along a straight-line demand curve, the absolute value of the price elasticity of demand a. always rises b. rises until the midpoint of the curve is reached, and then falls c. falls until the midpoint of the curve is reached, and then rises d. always falls e. falls from 1 to 0

Natural oligopolies occur when a. the government establishes a market with a few large producers b. the market output could be produced at a higher cost by several large firms rather than many small firms c. there are no barriers to entry d. the total market output could be produced at a lower cost by several large firms rather than many small firms e. one large firm can produce the total market output at a lower cost than several smaller firms could

New technologies may reduce oligopoly power by a. increasing the minimum efficient scale b. raising barriers to entry c. raising prices and lowering output d. reducing barriers to entry e. reducing the choices available to consumers in the market

Oligopolies feature a. the absence of barriers to entry b. extensive competition c. the goal of profit maximization d. strategic interaction of firms e. product differentiation

Oligopolies in the United States rarely engage in explicit collusion because a. it leads to lower profits b. firms are very wary of each other in this type of market c. they may have different dominant strategies d. it is illegal e. dominant strategies may not exist

Oligopoly a. is a market structure of many small firms b. is the only seller of a good or service c. is a market structure of a few consumers of a product d. is a market structure of a few interdependent firms e. is a more efficient market structure than perfect competition

Samantha has been working for a law firm and earning an annual salary of $90,000. She decides to open her own practice. 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. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $1,000. Assuming that there are no additional expenses, Samantha's total annual cost of production will equal a. $55,200 b. $221,400 c. $91,000 d. $146,200 e. $145,200

Suppose that the income elasticity of demand for college education is 1.3. This indicates that a. college education is a necessity b. college education is an inferior good c. the demand curve for college education slopes downward d. college education is a normal good e. the demand curve for college education is horizontal

Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls from 800 bottles per day to 700 bottles per day. Over this range, the demand for aspirin is a. elastic b. unitary elastic c. perfectly elastic d. inelastic e. perfectly inelastic

The U.S. market for locomotives is divided between two producers; General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of a. a bilateral monopoly b. monopolistic competition c. a collusive monopoly d. a duopoly e. a cartel

The change in cost resulting from producing one additional unit of output is a. average total cost b. total variable cost c. average variable cost d. marginal cost e. total cost

The cross-price elasticity of demand measures a. how the quantity demanded of one good changes along with income b. the slope of the demand curve c. the slope of the supply curve at the point of equilibrium d. the responsiveness of the quantity demanded of one good to changes in the price of another good e. how responsive changes in price are to changes in quantity demanded

The elasticity approach to measuring the sensitivity of quantity demanded to changes in price differs from using the slope because the elasticity approach calculates the ratio of the a. absolute change in price to the absolute change in quantity demanded b. absolute change in quantity demanded to the percentage change in price c. absolute change in quantity demanded to the percentage change in price d. percentage change in quantity demanded to the percentage change in price e. average change in price to the average change in quantity demanded

The marginal product of labor is the a. total output produced when one more worker is hired b. change in average output produced when one more worker is hired c. total output per worker when one more worker is hired d. change in total output when one more worker is hired e. maximum quantity of output when one more worker is hired

The more available substitutes there are for a good, the a. larger the number of consumers b. smaller the number of consumers c. smaller the supply side response d. more elastic the demand for that good e. less elastic the demand for that good

The short run for Barbara's Bakery is defined as a. one year b. one month c. the period of time during which all inputs are variable d. the period of time during which at least one input is fixed e. the time needed for a transaction to occur

The sign of the cross-price elasticity tells us whether two commodities are complements or substitutes, but the size of this elasticity measure tells us a. how the supply side of the market reacts to changes in demand b. whether the government should regulate the two markets c. which technology producers use d. how closely the two goods are related e. whether or not excess profits can be made in either market

The slope of the demand curve and the price elasticity of demand are a. basically the same thing b. determined by supply c. are derived from production and distribution costs d. different because slope is based on absolute changes and elasticity is based on percentage changes e. implicit in the shape of the supply curve

Under tacit collusion, a. firms form an explicit agreement to cooperate b. prices are usually lower than under perfect competition c. firms are usually subject to prosecution in the United States d. there is no explicit agreement for firms to cooperate e. firms meet to set prices and output levels for the industry

We may not be able to predict the outcome of a two-player game when a. each player follows a strategy that negates the strategy of the other player b. price exceeds marginal cost c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one player has a bilateral strategy

What characteristic is common to perfect competition, monopolistic competition, and monopoly? a. free entry and exit b. zero economic profit in the long run c. firms treat the market price as given d. firms maximize profits by producing where MR = MC e. small number of buyers relative to the number of sellers

When Brenda was in college, she worked part-time delivering pizzas and she ate five boxes of macaroni and cheese per week. After graduation, she became a high school teacher and ate only two boxes of macaroni and cheese per week. From this information, a. macaroni and cheese is a normal good for Brenda b. the law of demand applies to macaroni and cheese for Brenda c. macaroni and cheese are substitute goods d. macaroni and cheese is an inferior good for Brenda e. Brenda's income elasticity of demand for macaroni and cheese is positive

When the oil-producing countries of the Middle East meet to set prices and output levels, this is an example of a. monopoly behavior b. profit sharing c. market distribution d. explicit collusion e. tacit collusion

Which of the following explains why long-run average total cost at first decreases as output increases? a. diseconomies of scale b. less efficient use of lumpy inputs c. fixed costs become spread out over more units of output d. gains from specialization of inputs e. marginal costs rise at a slower rate than average costs in the short run

Which of the following goods is likely to have the most elastic demand over the relevant range of prices? a. insulin b. eggs c. milk d. Pepsi Cola e. gasoline

Which of the following has contributed to decreased concentration in U.S. industry since the 1970s? a. rising interest rates and disinflation b. segmentation and economies of scale c. devaluation and economies of scale d. technological change and market globalization e. marginal cost pricing and product differentiation

Which of the following is an example of nonprice competition? a. giving coupons for 10 percent discounts to potential customers b. having a Memorial Day Sale c. lowering the price on several selected brands d. offering a product in three colors-blue, green, and red-in addition to the standard black e. increasing the price on all products

Which of the following is the best example of a variable cost? a. property taxes b. lease payments for equipment rental c. rent on office space d. wages for hourly workers e. interest on outstanding loans

Which of the following pairs of characteristics would be consistent with imperfect competition? a. Many buyers and sellers and no barriers to entry b. Many buyers and sellers and a homogenous product c. No barriers to entry and all buyers and sellers have perfect information d. Many buyers and sellers and some barriers to entry e. Many buyers and sellers and everyone has perfect information

Which of the following would make cheating on a collusive agreement more likely? a. greater ease of observing other firms' prices b. a reduction in the number of sellers in the market c. close monitoring by the Department of Justice d. more frequent shifts in market demand e. an increase in the number of customers in the market

Which of the following, necessarily, equals zero when the firm's short-run output level is zero? a. sunk costs b. fixed costs c. implicit costs d. variable costs e. opportunity costs

Which of the following is a guns or butter decision? A. A nation shifts money from building railroads to building highways. B. A company decides to build armored tanks instead of bombs. C. A company chooses to make more cheese and less butter. D. A nation decides to produce fewer fighter jets and more bridges.

D. A nation decides to produce fewer fighter jets and more bridges.

Over the past month, the equilibrium quantity of apples decreased but the equilibrium price of apples stayed the same. Three eminent economists attempted to explain this data: Huey: Supply increased and demand decreased. Dewey: Supply decreased and demand was perfectly elastic. Luey: Demand increased and supply was perfectly elastic. Who of these eminences could be correct? A. Luey only. B. Huey and Dewey only. C. Dewey and Luey only. D. Dewey only.

D. Dewey only.

The soda can market is depicted in the diagram below. Waste run-off from a production of these cans pollutes local streams. Furthermore, the littering of cans along roads and highways causes public harm. Thus, social costs and social benefits in the soda can market are different from their private counterparts. At the market equilibrium with NO government intervention, area(s) represent deadweight loss (DWL). A. F, G, and H B. B, J and G C. B, F, G, H and J D. G, H and J

D. G, H and J

Private markets free from government intervention often overconsume common resource goods because those goods' ____________ often leads to their _____________ . A. Low excludability; low rivalry B. Low rivalry; low excludability C. High rivalry; low excludability D. Low excludability; high rivalry

D. Low excludability; high rivalry

A firm's implicit costs are a. its maintenance costs b. its paid-out costs of production c. its main source of executive costs d. irrelevant to the determination of economic profit e. opportunity costs of production that do not involve money outlays

If the marginal private costs of production are a constant amount higher than the marginal social costs of production in a given market, how might a "benevolent social planner" aid the market in reaching the efficient quantity of output? (i) Tax consumers the difference between the marginal private cost of production and the marginal social cost of production. (ii) Tax producers the difference between the marginal private cost of production and the marginal social cost of production. A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

D. Neither (i) nor (ii) is true.

The demand for limes is perfectly inelastic, the supply of limes is upward-sloping, and the lime market is currently in equilibrium at a price of $3/lime. Which of the following government policies would result in DWL in the lime market? (i) A price floor of $2/lime (ii) A $2/lime tax on lime producers A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

D. Neither (i) nor (ii) is true.

The market for tennis rackets in Moldavia is characterized by inelastic demand and elastic supply. Which of the following is (are) true? (i) Tennis racket producers bear the larger burden of any per-unit tax levied on them. (ii) Tennis racket producers receive the larger benefit of any per-unit subsidy given to them. A. (i) is true. B. (ii) is true. C. Both (i) and (ii) are true. D. Neither (i) nor (ii) is true.

D. Neither (i) nor (ii) is true.

A production possibilities frontier is bowed outward instead of a straight line when: A. The more resources the economy uses to produce one good, the fewer resources it has to produce the other good. B. The economy is self-sufficient and does not participate in global trade. C. The opportunity cost of producing either good is constant. D. The opportunity cost of producing either good depends on how much of either good is being produced.

D. The opportunity cost of producing either good depends on how much of either good is being produced.

A country's production possibilities depend on A. its technological level and its available resources. B. its natural resources. C. its human capital and its physical capital. D. all of the above.

D. all of the above.

On a production possibilities graph, a point of underutilization would appear A. above or to the right of the production possibilities frontier. B. directly on the production possibilities frontier. C. just beyond the future production possibilities frontier. D. below or to the left of the production possibilities frontier.

D. below or to the left of the production possibilities frontier.

Natural resources that are used to make goods and services are considered A. equipment. B. money. C. labor. D. land.

D. land

Which of the following is an example of a shortage? A. he price of oil going up because more people are driving cars B. the price of grain going down when supplies are scarce C. having a sale on soda because there are two many cases on the shelf D. not having enough of one brand of soda in the store on Saturday because of a sale on

D. not having enough of one brand of soda in the store on Saturday because of a sale on

Which of the following is NOT a factor of production? A. the land required for a hog farm B. the training required to repair an airplane engine C. the teacher required to teach an economics class D. the amount of money required to buy a car

D. the amount of money required to buy a car

What is the name of the law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases? A. the law of efficient production B. the law of effective production C. the law of decreasing costs D. the law of increasing costs

D. the law of increasing costs

average fixed cost

Decline as output increases. Dividing total fixed cost by quantity

A fundamental assumption of economics is

Due to scarcity people must make choices

$115,000

During its only year of operation, a firm collected $175,000 in revenue and spent $50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of their own money to build the firm's factory (instead of buying bonds and earning a 10% rate of return), which they sold at the end of the year for $100,000. The firm's economic profit is:

A 10 percent increase in buyers' incomes results in a 5 percent drop in the quantity of hot dogs demanded. In this range, the income elasticity of demand for hot dogs is a. 0.5 b. 2.0 c. 5.0 d. -2.0 e. -0.5

A firm's cost of variable inputs per unit of output is known as a. average total cost b. average fixed cost c. marginal cost d. total variable cost e. average variable cost

A firm's profit is a. greater if it is a corporation rather than if it is a sole proprietorship b. higher if it raises its price than if it does not c. lower if it lowers its price than if it does not d. never taxed by the government e. its revenue minus its costs

A less elastic demand for a good could result from a. strong supply-side reactions b. an increased number of available substitutes c. lower consumer incomes d. a longer time horizon e. a shorter time horizon

A market in which a small number of strategically interacting firms produce the dominant share of output is called a. perfect competition b. a monopoly c. monopolistic competition d. regulated e. an oligopoly

A merger wave can be set off a. by government restrictions that prevent firms from reaching their minimum efficient scale b. if the federal government raises corporate income taxes. c. if the federal government lowers corporate income taxes d. if minimum efficient scale falls e. by some change in a market, such as a shift in market demand.

A perfectly inelastic supply curve a. cannot exist b. is horizontal c. has an elasticity of 0 d. has an elasticity of 1 e. is vertical

After much success during the 1970s, the OPEC cartel saw the price of oil and the revenues of its members decline during the 1980s due, in part, to a. the low elasticity of demand for oil in the short run b. the large number of buyers from each member nation c. surging demand for oil in the early 1980s d. publicity concerning the prices negotiated with each member e. the greater long-run elasticity of demand for oil

All of the following, except one, can be a barrier to entry into an oligopoly market. Which is the exception? a. heavy advertising by existing firms b. zoning regulations c. excess production capacity among existing firms d. tariffs and quotas e. a small minimum efficient scale

Along its long-run average total cost curve, a firm employs a. a different amount of fixed inputs at each point b. the same amount of fixed inputs at each point c. a declining amount of fixed inputs at each point as it moves to higher output levels d. an increasing amount of fixed inputs at each point as it moves to higher output levels e. no fixed inputs

An equilibrium occurs in a game when a. price equals marginal cost b. quantity supplied equals quantity demanded c. all independent strategies counterbalance all determinate strategies d. all players follow a strategy that negates the strategies of at least one other player e. all players follow a strategy that they have no incentive to change

An important difference between a perfectly competitive market and a monopolistically competitive market is that, in the latter, a. there are more sellers of the good b. there are only a few large sellers c. there are no barriers to entry or exit d. there is only one seller of the good e. the product is not standardized

As a firm increases its output in the short run, a. it also varies its technology b. it increases all of its inputs c. it increases its plant size d. it increases only one of its inputs e. at least one of its inputs is fixed

Assume that an industry requires a very specialized technology that involves high start-up costs for new firms no matter what level of output they produce. In the long run, at low levels of output, these firms will tend to exhibit a. diminishing marginal returns b. increasing marginal returns c. diseconomies of scale d. constant returns to scale e. economies of scale

Bob gives up his factory job in order to open a bait-and-tackle shop. The earnings from his factory job represent a. the hourly wage paid by the shop b. the marginal cost of running the shop c. the average cost of running the shop d. a fixed cost that can vary in the long run e. an implicit cost of opening the shop

Cartels frequently break down in the long run because a. they are illegal b. tacit collusion is illegal c. contracts and agreements are legally binding d. cooperative behavior usually lowers profits for the entire industry e. members have an incentive to increase output

Cheating on a collusive agreement is more likely when a. a price floor is in effect b. firms are located in the same state c. it is easy to observe the other firms' prices d. there is a small number of firms e. market demand is unstable

For which of the following is demand likely to be the most price elastic? a. a good for which there are no close substitutes b. a good for which there are no easily-obtained substitutes c. a good with close substitutes that are difficult to obtain d. a good that is no longer being produced e. a good for which close substitutes are easily obtained

If a market is not subject to large, frequent shifts in demand, a. firms will have a tendency to lower prices to increase market share b. the market will have few firms c. prices will approach equilibrium very slowly d. price leadership will rarely occur e. cheating on collusive agreements is more difficult

If a price decrease results in no change in seller's total revenue then a. supply determined demand b. supply is unresponsive to demand c. demand is elastic d. demand is inelastic e. demand is unitary elastic

If an Industry consists of two large firms, it is known as a(n) a. monopoly b. perfect competition c. monopolistic competition d. natural monopoly e. duopoly

If demand is price elastic, a decrease in price results in a(n) a. decrease in total expenditure on the good b. unfavorable shift in tastes and preferences c. decrease in total cost for the seller d. increase in supply of the good e. increase in total revenue to the seller

If market structures are ranked from the one in which firm(s) face the flattest demand curve to the one where they face the steepest, the correct order is a. monopoly, monopolistic competition, perfect competition b. monopolistic competition, perfect competition, monopoly c. monopolistic competition, monopoly, perfect competition d. perfect competition, monopoly, monopolistic competition e. perfect competition, monopolistic competition, monopoly

Marginal cost is the

change in total cost that results from producing one more unit of output.

If minimum average cost is the same over a large range of output, a. the market will evolve into a natural monopoly b. minimum efficient scale is large as well c. only a few large firms will survive in the long run d. smaller firms have a cost advantage over larger firms e. firms of varying sizes can coexist

If the percentage change in quantity demanded divided by the percentage change in price equals 1, then a. supply is inelastic b. supply is elastic c. demand is elastic d. demand is inelastic e. demand is unit elastic

If the price of a certain brand of sneakers falls from $27.50 to $22.50, and the quantity demanded by consumers increases from 15 to 25 pairs per week, then the price elasticity of demand is a. 0.25 b. 1.00 c. 2.75 d. 1.50 e. 2.50

In a Nash equilibrium a. any player can improve his outcome by changing one other player's strategy b. any player can improve his outcome by forcing other players to adopt their dominant strategies c. no player plays her dominant strategy d. no player can improve his own outcome e. no player can improve his outcome by changing only his own strategy

In the long run, a monopolistically competitive firm will produce too little output to minimize average cost. Therefore, it will have a. positive economic profit b. negative economic profit c. excess profit d. X-inefficiency e. excess capacity

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

In which of the following situations is cheating on a collusive agreement is most likely? a. Prices are publicly posted. b. There are few sellers in the market. c. The market demand curve is elastic. d. There are economies of scale. e. Prices are difficult for competitors to observe.

Limits to collusion include a. price discrimination b. economies of scale c. horizontal market demand curves d. high prices e. incentives to cheat on the collusive agreement

Long-run average total cost must always be a. rising b. declining c. greater than or equal to the marginal unit of variable cost d. greater than or equal to the short run average total cost e. less than or equal to short-run average total cost

Of the following markets, which is most likely to be monopolistically competitive? a. automobiles b. corn c. overnight package delivery d. air travel between a small city and a larger one e. fast food

One strategic barrier that may keep new firms out of a market is a. producing where marginal cost equals marginal revenue b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages, which may make it impossible for new entrants to compete profitably e. excess capacity, which may serve as a signal to new entrants to stay away

Suppose that a local supermarket sells apples and oranges for 50 cents apiece, and at these prices is able to sell 100 apples and 200 oranges per week. One week, the supermarket lowered the price per apple to 40 cents and sold 120 apples. The next week, they lowered the price per orange to 40 cents (after raising the price per apple back to 50 cents) and sold 240 oranges. These results imply that the a. price elasticity of apples is lower than the price elasticity of oranges b. price elasticity of apples is higher than the price elasticity of oranges c. demand for apples is more price sensitive than the demand for oranges d. demand for oranges is more price sensitive than the demand for apples e. price elasticities of demand for apples and oranges are the same over these price ranges

The Marginal Cost curve will a. cut ATC at the minimum of ATC but cut AVC at a point to the left of the minimum of AVC. b. cut ATC at the minimum of ATC but cut AVC at a point to the right of the minimum of AVC. c. cut AVC at the minimum of AVC but cut ATC at a point to the left of the minimum of ATC. d. cut AVC at the minimum of AVC but cut ATC at a point to the right of the minimum of ATC. e. cut both ATC and AVC at their respective minimums

The cross-price elasticity of demand is measured by the a. change in quantity demanded of one good divided by the change in price of another good b. percentage change in quantity demanded of one good divided by the percentage change in its price c. percentage change in demand for one good divided by the percentage change in income d. percentage change in quantity supplied of one good divided by the percentage change in the price of another good e. percentage change in quantity demanded of one good divided by the percentage change in price of another good

The demand curve facing a monopolistic competitor is a. a horizontal line at the market price b. upward sloping c. perfectly elastic d. perfectly inelastic e. downward sloping

The firm's long-run average total cost curve a. intersects each short-run average total cost curve at its minimum point b. lies below its short-run average total cost curves at every output level c. lies above its short-run average total cost curves at every output level d. coincides with a small segment of its short-run average total cost e. touches each of the firm's short-run average total cost curves at the lowest points

The least-cost rule for firms states that in the long run, firms will a. produce output at the point where ATC is minimized b. produce output at the point where MC is minimized c. minimize variable costs d. choose the output level with the lowest TC e. choose the lowest-cost input combination for any output level

The model of monopolistic competition assumes that a. there are only a few sellers b. there are significant barriers to exit c. each firm charges the same price for its output d. the buyers are price setters e. firms are strategically independent

The more narrowly we define a good, the easier it is to find substitutes, and a. the greater is the number of producers of that good b. the greater is the supply-side response c. fewer consumers therefore wish to purchase the good d. less elastic is the demand for that good e. more elastic is the demand for that good

Economists tend to believe that to change people's behavior you must:

change their incentives.

The percent change in the quantity of one commodity demanded divided by the percent change in the price of another commodity is the a. price elasticity of demand b. price elasticity of supply c. income elasticity of demand d. income elasticity of supply e. cross-price elasticity of demand

The price elasticity of demand is a. irrelevant to the determination of prices, incomes, and interest rates b. indeterminate in most cases c. the percentage change in price divided by the percentage change in quantity demanded d. the percentage change in price with respect to the percentage change in quantity supplied e. the percentage change in quantity demanded divided by the percentage change in price

The prisoner's dilemma demonstrates that a. breaking out of prison may be too costly for most prisoners b. the opportunity cost of being a prisoner is indeterminate c. the dominant strategies followed by two prisoners may lead to disequilibrium that is unpredictable d. the weak strategy may be followed by both prisoners if the opportunity cost is low e. the dominant strategies followed by two players may lead to an equilibrium that is less not optimal for both players together

The vertical distance between a firm's average total cost curve and its average variable cost curve is its a. marginal cost b. sunk cost c. total variable cost d. total fixed cost e. average fixed cost

To produce a firm's current output level, total cost is $600, and the total variable cost is $450. Therefore, the firm has a. a marginal cost of $150 b. sunk costs of $150 c. a marginal cost of $1,450 d. total fixed cost of $1,450 e. total fixed cost of $150

We can predict the outcome of a two-player game as long as a. each player follows a strategy that negates the other player's strategy b. at least one player has a bilateral strategy c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one of the players has a dominant strategy

We would expect the cross-price elasticity of demand between two different brands of flour to be a. negative with a high absolute value b. negative with a low absolute value c. zero d. positive with a low absolute value e. positive with a high absolute value

When a one-percent change in price is accompanied by a larger percent change in quantity demanded, a. demand is inelastic b. supply is elastic c. the good is a normal good d. the good is an inferior good e. demand is elastic

When calculating the price elasticity of demand, we assume that the price of the good changes while all other variables affecting a. demand except buyers' incomes remain constant b. demand except the population size remain constant c. demand and supply remain constant d. supply remain constant e. demand remain constant

When colluding oligopolists meet and formally agree on mutually beneficial strategies this is called a. implicit exclusion b. beneficial inclusion c. reciprocal inclusion d. implicit exclusionary pricing e. explicit collusion

When firms become so large that they have to add additional layers of management and decision making becomes more cumbersome, a. economies of scale are said to occur b. marginal cost begins to fall in the short run c. marginal cost begins to rise in the short run d. the long-run average total cost curve is flat e. the long-run average total cost curve slopes upward

Which of the following is an implicit cost? a. salaries paid to owners who work for their own firm b. interest on money borrowed to finance equipment purchases c. cash payments for raw materials d. wages paid to hourly employees e. foregone interest on money taken from bank accounts to buy equipment

Which of the following is most likely to be a fixed input in the short run for Joe's Garage? a. the grease used to lubricate cars b. the part-time labor employed to repair cars c. the inventory of replacement parts d. the electricity used to heat and light the garage e. the garage used to repair cars

With price leadership, a. price equals marginal cost b. the industry output is generally greater than a competitive industry c. prices are set by explicit collusion d. firms price discriminate among different classes of customers e. there is no formal agreement regarding prices

With successful collusion that maximizes the total profits of the firms in the market, a. the market demand curve shifts leftward b. monopoly power allows the sellers to charge whatever price they want for their joint output level c. each firm faces a horizontal demand curve for its output d. each firm can sell as much output as it chooses at the price set by the cartel e. the pricing decision is constrained by the market demand curve

Gehrig is willing to pay $90 for a cap made of pure Irish wool. Suppose he finds such a cap for $71 on eBay. If Gehrig buys the cap, he will have an individual consumer surplus of $71.

False

In calculations of producer surplus, it is important to distinguish between the minimum price at which a seller is willing to sell a good and the seller's cost.

False

Reasons for Economies of Scale

Fixed costs are spread over a larger number of units Construction costs increase at a decreasing rate as facility size increases Processing costs decrease due to standardization

Which of the following statements is true regarding the costs associated with owning and operating an automobile?

Fixed costs include insurance and variable costs include gasoline.

less than accounting profit

For most firms, economic profit is:

losses; $35,000

George owns a gun range in Texas. He pays $32,000 per year in insurance, $408,000 in wages, $23,000 in supplies, and he forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic ________ equaled ________.

Which of the following statements is TRUE? The concept of equilibrium requires that all individuals have an equal amount of income. If a market is in equilibrium, the price in that market will not fluctuate by more than 5%. If a market is in equilibrium, there will be no remaining opportunities for individuals to make themselves better off. A market is in equilibrium when the number of buyers is equal to the number of sellers.

If a market is in equilibrium, there will be no remaining opportunities for individuals to make themselves better off.

the firm should exit the industry in the long run

If economic profit for a firm is negative:

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

When people want more goods and services than are available, the economy undergoes inflation. This statement best represents this economic concept: Overall spending sometimes gets out of line with the economy's productive capacity. Government policies can change spending. Resources are scarce. When markets don't achieve efficiency, government intervention can improve society's welfare.

Overall spending sometimes gets out of line with the economy's productive capacity.

Sunk Cost

Should be ignored in business decision making

-$45,000

You decide to quit your $60,000 per year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:

$94,000

Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled:

explicit costs

The actual payments a firm makes to its factors of production and other suppliers.

Which of the following statements is a normative statement?

The best way to correct our current income tax system is to replace it with a Value Added Tax.

the opportunity cost of capital used by business

The implicit cost of capital is:

minimum efficient scale

The lowest rate of output at which a firm takes full advantage of economies of scale

Which of the following is not one of the four basic principles for understanding individual choice?

The real cost of something is the money that you must pay to get it.

Which of the following would be a positive economic statement?

There has been an increase in the rate of inflation.

The minimum wage is the best-known kind of price floor.

True

An inward shift in the U.S. economy's production possibility frontier could represent which of the following?

U.S. workers moving to Canada

When a factory closes, why does it spell bad news for the local restaurants? The opportunity cost of dining out has fallen. Sales taxes are likely to increase. Unemployed factory workers are eligible for government unemployment benefits. Unemployed factory workers have lower incomes and are less likely to dine out.

Unemployed factory workers have lower incomes and are less likely to dine out.

-$12,000

Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is:

The federal government regulates how much carbon dioxide a factory can emit. This statement best represents this economic concept: When markets don't achieve efficiency, government intervention can improve society's welfare. Resources are scarce. Markets usually lead to efficiency. "How much" is a decision at the margin.

When markets don't achieve efficiency, government intervention can improve society's welfare.

The fallacy of causation is evident from which one of the following statement?

Whenever I wear my red jersey my team wins a game.

When the price of gas goes up, the demand for tires goes down. This means that tires and gas are:

complements

Which one of the following will change only the quantity demanded of oranges

a change in price of orange

Long-run adjustment

a length of time in which all variables in an operation can be manipulated

natural monopoly

a market that runs most efficiently when one large firm supplies all of the output

The minimum wage, which sets a lower limit on the wages that workers can earn, is often above the equilibrium price. The minimum wage is an example of:

a price floor

For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes ________ in the equilibrium price of a hamburger and ________ in the equilibrium quantity of hamburgers.

a rise; an increase

Commons

a tract of land owned or used jointly by the residents of a community, usually a central square or park in a city or town.

With trade, a country may:

consume outside its production possibility frontier.

efficiency

able to accomplish something with the least waste of time and effort; competency in performance.

You are analyzing a trade-off when you compare the _____and _____ of doing something. direct costs; total costs direct costs; opportunity costs marginal benefits; total benefits costs; benefits

costs; benefits

Average fixed cost:

declines continually as output increases.

When the price falls from $45 to $35, producer surplus ________ for a total producer surplus of ________.

decreases by $40; $60

Over the past several years, consumer tastes for tattoos have increased. This means that the ________ for tattoos has ________.

demand; increased

The demand for factors of production is called a derived demand because it is

derived from the demand for the outputs that are produced by the factors of production

Accounting profit equals

economic profit minus explicit costs

marginal product

extra output due to the addition of one more unit of input

A cost that does not depend on the quantity of output produced is called a

fixed cost

total cost

fixed costs plus variable costs

Capitalist Enterprise

free enterprise or private enterprise an economic system based on the private ownership of the means of production, distribution, and exchange, characterized by the freedom of capitalists to operate or manage their property for profit in competitive conditions.

Maria wants to get rid of her bookshelf. She is willing to give it away, but her neighbor offers to pay $30 for it. Maria has a ________.

gain of producer surplus.

When markets don't achieve efficiency, then:

government may intervene to improve society's welfare.

Sometimes the government varies its spending, depending on the needs of the country. This statement best represents the economic concept that: when markets don't achieve efficiency, government intervention can improve society's welfare. resources should be used as efficiently as possible to achieve society's goals. overall spending sometimes gets out of line with the economy's productive capacity. government policies can change spending.

government policies can change spending.

Explicit costs are payments the firm makes for

inputs such as wages and salaries to its employees, whereas implicit costs are non-expenditure costs that occur through the use of self owned resources such as foregone income

corporate cronyism

is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism

perfect information

is also a game situation in which an agent is theorized to have all relevant information with which to make a decision. It has implications for several fields.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

Assume beef and chicken are substitutes. Then, ceteris paribus, an increase in price of beef will

increase the demand for chicken

Consider the market for milkshakes. An increase in the consumer surplus may result from a(n) _______ in the __________ of milkshakes.

increase; supply

Market failure occurs when: prices of essential goods such as gas become very high. mutually beneficial trades take place. a business declares bankruptcy. individual actions have side effects that are not properly taken into account.

individual actions have side effects that are not properly taken into account.

Microeconomics deals with:

individual units in the economy.

Scarcity exists when: individuals can have more of any good without giving up anything. individuals can have more of one good but only by giving up something else. resources are unlimited. making choices among two or more alternatives is not necessary.

individuals can have more of one good but only by giving up something else.

All points inside the production possibility frontier represent:

inefficient production points.

venture capitalist

is an investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets.

Minimum wage

is the minimum hourly wage an employer can pay an employee for work

Cap and trade

is the most environmentally and economically sensible approach to controlling greenhouse gas emissions, the primary driver of global warming. The "cap" sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere.

A price ceiling will have no effect if

it is set above the equilibrium price

If every individual were required to be self-sufficient: it's impossible to say how living standards would change. living standards would fall. living standards for some individuals would fall, but for others they would rise. living standards would rise.

living standards would fall.

The concept of the margin deals with:

making incremental choices.

The Kansas market for corn is considered a competitive market. This means there are ________ buyers and ________ sellers of corn in Kansas.

many; many

The amount by which an additional unit of a good or service increases a consumer's total utility, all other things unchanged is

marginal utility

If in Equitania, 20% of the population receive 80% of the income and the remaining 80% of the population receive 20% of the income, Equitania's economy: may be efficient. is efficient. is neither efficient nor equitable. cannot be efficient, since efficiency requires a more nearly equal distribution of income.

may be efficient.

Technological improvements will:

shift the production possibility frontier outward.

If an economy is producing a level of output that is on its production possibility frontier, the economy has:

no idle resources and is using resources efficiently.

Diseconomies of scale arise primarily because:

of the difficulties involved in managing and coordinating a large business enterprise.

As long as people have different ________, everyone has a comparative advantage in something.

opportunity costs

average product

output per worker

During the Great Depression, consumers and producers in the United States dramatically reduced their spending as compared to the quantity of goods and services available at the time. This statement best represents the economic principle of:

overall spending sometimes gets out of line with the economy's productive capacity.

A key theme fundamental in the study of economics is:

people have unlimited wants but face limited means of satisfying them.

economic cost

the payment that must be made to obtain and retain the services of a resource

A shift of the demand curve for Luis's Pizza would not be caused by a change in the:

price of Luis's Pizza.

Market power

refers to the ability of a firm (or group of firms) to raise and maintain price above the level that would prevail under competition is referred to as market or monopoly power. The exercise of market power leads to reduced output and loss of economic welfare.

The production possibility frontier is bowed out from the origin because:

resources are not equally suited for the production of both goods.

accounting profit

revenue - explicit costs

Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of: scarce resources. resources being used as efficiently as possible to achieve society's goals. marginal analysis. opportunity costs.

scarce resources.

Economists use abstract or simplified models to explain real-life situations because:

simplifications and assumptions often yield answers that can help to explain the more difficult real-life situations.

When individuals act in their own self-interest: equity is always achieved. all opportunities have been taken to make some people better off without making other people worse off. efficiency is always achieved. society may be worse off in some cases.

society may be worse off in some cases.

It is certain that the equilibrium price will rise when:

supply decreases and demand increases.

A servere flood in grain farming areas, other things the same, will decrease..... grain and increase its.....

supply of price

short run

the period of time during which at least one of a firm's inputs is fixed

The term utility in economics refers to

the pleasure or benefit that one drives from consumption of a good or service

Marginal Analysis

takes into account the effects of one more unity of an activity

normal profit

the accounting profit earned when all resources earn their opportunity cost

For a company, as more units are produced

the average fixed cost gets smaller/ the average total cost and the average variable cost get closer to one another

In a production process that least cost combination of combining inputs is where

the contribution from the last dollar invested in each input is the same

The cost of going to college doesn't include:

the cost of food.

marginal cost

the cost of producing one more unit of a good

To maximize profits a firm will employ workers up to the point at which for the last worker employed

the marginal revenue product is equal to the wage rate

Maximum total surplus in the market for chocolate occurs when:

the market is in equilibrium.

. When a chef prepares a dinner for a customer, which of the following is physical capital? the chef's training and experience the oven the food ingredients the chef

the oven

Invisible Hand

unintended social benefits resulting from individual actions. The phrase is employed by Smith with respect to income distribution

A natural monopoly exists when

unit costs are minimized by having one firm produce an industry's entire output.

average variable cost

variable cost divided by the quantity of output

Consumer surplus is equal to

what buyers are willing to pay for a good minus what they are actually pay

For an economist, the cost of something is:

what you gave up to get it.

A good is inferior if:

when income increases, the demand decreases.

A good inferior if

when people's income increases, the demand for it decreases

If the government imposes a price floor in the market for grapefruit, total surplus:

will decrease

If the price of a good rises, then producer surplus:

will increase

You manage a popular nightclub and lately revenues have been disappointing . Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices increase revenues. You aren't sure who is right, but you know that.

your bouncer thinks the demand for drinks are inelastic, while your bartender thinks the demand for drinks is elastic

micro final

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